United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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Nos. 04-3679/3880
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Charles T. Wilson; Caryless Vondran; *
Willie Ferell; Onixe Anderson; *
Dallas W. Watlington; Tommy *
Humphrey; Neartis Clark; Alvin *
Smith, Jr.; Tommie Outley; Billy *
Fleming; Lloyd A. Nichols; Gary R. *
Thomas; Alvin Smith; Jimmy L. *
Dooley; Kenneth Rogers; William *
Dawson; Samuel J. Cullum; Thomas *
Anthony; Corey Amos; Bobby Hedrick; *
Charles Busby; Larry Foster; Danny *
Doler; Percy Graham; Cora L. Jamison; *
Robert Thorn, Jr.; Jessie Hawkins; *
Curtis Bradley, Jr.; Donald Barger; *
Almos Andrews; Jesse Lee Ferrell; * Appeals from the United States
Eddie Lee Hodger; Leodis Seawood; * District Court for the
Roy Lee Coleman; Larvan Hawkins; * Eastern District of Arkansas.
Steven Dearing; Tracy Hill; Jeffery *
Wright; John Brooks Jones; Clarence *
Treat; Saundra House; Kevin *
Lawrence; Aaron Barton; Odis L. *
Barton; Manuel Sanchez, Jr.; Stanley *
Barton; Evelyn Burgess; Bennie *
Wilson; Kristi McCain; Leo Deaviser; *
Ronald McFadden; Kendle Williams; *
Willie K. Ponder; George Robert *
Lawrence; Elmo Hilliard; Sammie *
Sinclair; Charlie L. Huckaba; Calvin *
Smith; Recorder Henderson; Huester *
Barton; Ruby Hall; Michael Stanley *
Norviel; Lewis E. Cook; Isacc Rogers; *
Carlton Hoggard; Robert Nelson; *
Lincoln Taylor, Jr.; Terry L. *
Gardner; Willie White; Walter L. *
Taylor; Barbara K. Dye: Troy *
Sparkmon; Paul Roger Clardy; Lester *
Taggart; Andy Anderson; Daron *
Sparkman; Lee A. Henderson; *
Jermaine Davis; Charles A. Hughes; *
Donald Strong; James Nobles; Floyd *
Stokes; Clyde V. Clark; Richard *
Thornton; Ronnie C. McShan; James E. *
Fingers; Donald R. Hall; Billy J. *
Jones, *
*
Appellees/Cross-Appellants, *
*
v. *
*
Airtherm Products, Inc., *
*
Appellant/Cross-Appellee. *
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Submitted: November 16, 2005
Filed: February 3, 2006
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Before MURPHY, BOWMAN, and GRUENDER, Circuit Judges.
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BOWMAN, Circuit Judge.
Former employees of Airtherm Products, Inc. (API) sued API for failing to
notify them of a plant closing as required by the Worker Adjustment and Retraining
Notification Act (WARN Act), 29 U.S.C. §§ 2101–09 (2000), before API sold its
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business to Airtherm LLC (ALLC). Concluding that API violated the WARN Act by
terminating its employees' employment without guaranteeing that ALLC would hire
the employees after the sale was concluded, the District Court granted summary
judgment to the former employees and awarded damages in the amount of
$515,661.92. Reviewing de novo the District Court's grant of summary judgment,
Smullin v. Mity Enter., Inc., 420 F.3d 836, 837 (8th Cir. 2005), we conclude that the
WARN Act's sale-of-business exclusion, 29 U.S.C. § 2101(b)(1), protected API from
liability in the circumstances of this case. Therefore, we reverse.
I.
API formerly engaged in the business of manufacturing heating and air
conditioning products. In 2000, ALLC's parent company, Mestek, Inc., which also
manufactured heating and air conditioning products, became interested in purchasing
API's business. When Mestek formed ALLC as a subsidiary for the purchase of API,
Mestek decided to use the name Airtherm because that name had value in the heating
and air conditioning market. On May 24, 2000, API and ALLC executed an Asset
Purchase Agreement (Purchase Agreement) for the sale of API's manufacturing
business to ALLC. Under the Purchase Agreement, ALLC agreed to offer
employment to all of API's employees. An exhibit appended to the Purchase
Agreement contained a list of API's employees. Closing was scheduled for June 30,
but the parties did not close the sale on or before that date. On August 21, API and
ALLC executed the First Amendment to Asset Purchase Agreement (Amended
Purchase Agreement). The Amended Purchase Agreement replaced the section of the
Purchase Agreement that included ALLC's promise to offer employment to all of
API's employees with a section that included the following promise: "Effective on the
next working day following the Closing Date, [ALLC] (a) shall offer employment to
all salaried and clerical employees of [API] in St. Louis and Arkansas; and (b) shall
offer employment to employees within the bargaining unit represented by the
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[union]." Joint Appendix at 138. The Amended Purchase Agreement also changed
the closing date from June 30 to August 25. The Amended Purchase Agreement
added provisions under which ALLC agreed to indemnify API for WARN Act
violations and API agreed to notify the union in writing about the decision to close
the manufacturing plant and allow the union to request bargaining over the effects of
the plant closure. Specifically, API agreed to allow ALLC to approve the contents
of the letter to the union, and once approved, ALLC promised to indemnify API for
any liability under the WARN Act.1
On August 22, ALLC assured API in writing that ALLC would "hire a
substantial number of [API's] current employees" such that "[t]he jobs of fewer than
50 people will be affected by termination." Id. at 99. The letter also included an
"Employment Application Schedule" to be posted for API's employees so they would
know that ALLC would accept applications from the employees on Monday,
August 28, and on Tuesday, August 29. Id. at 100. In an August 23 letter from API's
attorney to the union representing some of API's employees, API stated that it was "in
the process of being sold" to ALLC and notified the union that it was exercising its
rights under the labor agreement's "Severance Allowance" clause "to close the plant,
terminate the bargaining unit employees, and pay all eligible employees their
severance pay." Id. at 144. The letter also stated, "It is [API's] understanding that
after any sale is concluded [ALLC] will begin taking applications for employment on
Monday, August 28, 2000, at 8:30 a.m. It is hoped that all of [API]'s current
employees will make application for employment with [ALLC]." Id. at 145.
1
In other proceedings, the union representing API's employees filed charges
against API and ALLC with the National Labor Relations Board regarding the sale
of API's business. The charges dealt with such labor law issues as effects bargaining
and successor employer. The parties settled those charges.
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The sale closed on August 25, the same day API terminated the employment
of its employees. By September 25, ALLC had hired "a substantial number of former
[API] employees."2 Wilson v. Airtherm Prods., Inc., No. 2:01 CV 00055-WRW, 2001
WL 34818807, at *2 (E.D. Ark. Sept. 10, 2001). In March 2001, a number of API's
former employees, including those hired by ALLC, sued API for failing to give notice
of a plant closing under the WARN Act. The District Court granted summary
judgment to the employees. In deciding this appeal, we do not address the majority
of issues raised by API or the employees. Instead, we focus solely on the District
Court's interpretation and application of the WARN Act's sale-of-business exclusion.
II.
The WARN Act requires an employer to provide written notice to employees
at least sixty days before a plant closing. 29 U.S.C. § 2102(a)(1). The purpose of the
notice requirement is to provide "workers and their families some transition time to
adjust to the prospective loss of employment, to seek and obtain alternative jobs and,
if necessary, to enter skill training or retraining that will allow these workers to
successfully compete in the job market." 20 C.F.R. § 639.1(a) (2005). Although the
notice requirement may seem straightforward, its application often depends on the
WARN Act's technical definitions. For instance, the WARN Act defines plant
closing as "the permanent or temporary shutdown of a single site of employment . . .
result[ing] in an employment loss . . . during any 30-day period for 50 or more
[full-time] employees." 29 U.S.C. § 2101(a)(2). The WARN Act defines an
employment loss as "an employment termination, other than a discharge for cause,
voluntary departure, or retirement." Id. § 2101(a)(6)(A).
2
The parties dispute the number of former API employees hired by ALLC.
Because our decision does not rest on this information, we will not scour the record
to pin down the exact number.
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Critical to this case, however, is the WARN Act's exclusion of sales of
businesses from what constitutes an employment loss:
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 . . . up to
and including the effective date of the sale. After the effective date of
the sale of part or all of an employer's business, the purchaser shall be
responsible for providing notice for any plant closing . . . .
Notwithstanding any other provision of this chapter, any person who is
an employee of the seller (other than a part-time employee) as of the
effective date of the sale shall be considered an employee of the
purchaser immediately after the effective date of the sale.
Id. § 2101(b)(1) (emphasis added). This sale-of-business exclusion stresses that the
WARN Act does not automatically require a seller of a business to give notice to its
employees that their employment will be terminated as a result of the sale. The
regulations explain, "Although a technical termination of the seller's employees may
be deemed to have occurred when a sale becomes effective, WARN notice is only
required where the employees, in fact, experience a covered employment loss." 20
C.F.R. § 639.6. Therefore, we must apply the sale-of-business exclusion to the facts
of this case to determine whether API—as the seller—was required to give notice to
its employees of a looming employment loss due to a plant closing.
The plain language of the sale-of-business exclusion supports API's contention
that the WARN Act did not require it to provide notice to its employees of a plant
closing. Even though a seller of a business technically terminates the employment
of its employees—it would be difficult to imagine a sale of a business as a going
concern where the seller does not terminate the employment of its employees—the
WARN Act does not focus on technical terminations. See id. Instead, the WARN
Act creates a system that allocates notice responsibility between the seller of the
business and the buyer of the business, and only the party actually causing
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employment loss due to a plant closing is required to provide WARN Act notice. As
long as the seller's employees are employed by the seller on the effective date of the
sale, those employees automatically are considered to be employees of the buyer
"immediately after the effective date of the sale" for purposes of the WARN Act. 29
U.S.C. § 2101(b)(1).
In addition to the WARN Act's plain language strongly suggesting that API,
as the seller of a business, had no WARN Act responsibility to provide notice of a
plant closing in the circumstances of this case, our Circuit's recent decision in Smullin
also supports API's position. 420 F.3d at 836–41. Similar to what happened in this
case, the seller in Smullin terminated the employment of its employees on a Friday,
the day it sold its Arkansas manufacturing plant as a going concern to the buyer.
Over the weekend, the buyer interviewed and hired forty-four of the plant's
sixty-eight employees. On the following Monday, the plant continued operating
under the buyer's ownership. The seller's former employees sued the seller for
violating the WARN Act by terminating the employment of all sixty-eight employees
without proper notification. The district court granted summary judgment to the
seller, and the Circuit affirmed. Id. at 837.
Writing for the Court, Chief Judge Loken recognized that fewer than fifty
employees suffered an employment loss because the buyer immediately hired all but
twenty-four of the seller's employees. Thus, the Court concluded that "WARN Act
notices were required only if the buyer's hiring must be ignored," which forced the
Court to consider § 2101(b)(1)'s sale-of-business exclusion. Id. at 838. The plaintiffs
argued that the sale-of-business exclusion did not apply "because the sale took the
form of a sale of assets, and the plant's employees were terminated by [the seller] with
no right to be rehired by the buyer." Id. at 839. Rejecting this argument, the Court
stated that the sale-of-business exclusion "clearly connotes any transaction that
transfers all or part of the employer's overall operations as a going concern." Id.
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Expounding on "this functional, common sense approach," i.e., asking whether the
sale of the business involves merely the sale of assets or whether it is a sale of a
business as a going concern, the Court noted that this approach "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." Id. The Court
further opined that "defining the exclusion in this generic fashion promotes
compliance with the [WARN] 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." Id.
Thus, the Court recognized that when a case involves simply a sale of assets,
see, e.g., Burnsides v. MJ Optical, Inc., 128 F.3d 700, 702–03 (8th Cir. 1997), cert.
denied, 523 U.S. 1119 (1998); Oil, Chem. & Atomic Workers Int'l Union v. CIT
Group/Capital Equip. Fin., Inc., 898 F. Supp. 451, 456–58 (S.D. Tex. 1995), as
opposed to the sale of a business as a going concern, the seller retains the WARN Act
notice requirement because the seller is the party actually closing the plant that results
in employment losses for fifty or more employees. Smullin, 420 F.3d at 839–40.
Because the plant in Smullin was sold as a going concern, the sale fell within
§ 2101(b)'s sale-of-business exclusion, so that any potential notice requirement fell
on the buyer's shoulders, regardless of the seller's technical termination of its
employees' employment that occurred by reason of the sale itself. Id. at 841. Because
the seller did not owe a duty under the WARN Act and because the buyer did not take
any action that violated the WARN Act, the Court held that neither the buyer nor the
seller violated the WARN Act. Id.
There can be no doubt that employees are entitled to notice under the WARN
Act when a qualified plant closing occurs. See 20 C.F.R. § 639.4(c) ("Affected
employees are always entitled to notice; at all times the employer is responsible for
providing notice."). The essential question is whether the seller or the buyer is
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considered the employer for WARN Act purposes. When the sale of a business as a
going concern is involved, the sale-of-business exclusion creates a presumption that
the buyer is the employer for WARN Act purposes if the seller still employs its
employees on the day of the sale. Unless something indicates otherwise, the sale of
a business as a going concern typically will not involve a qualified plant closing with
resultant employment loss unless and until the buyer makes such a decision.3
In this case, any potential WARN Act notification requirement belonged to
ALLC, the buyer of API's business as a going concern. It is undisputed that API did
not terminate its employees' employment until August 25, 2000, the date of the sale.
We also deem it obvious that API did not close its Arkansas manufacturing plant
before August 25. Indeed, API had every reason to believe that the sale of its
business would not result in a plant closing, as defined by the WARN Act, because
ALLC gave every indication that it was buying API as a going concern. For example,
Mestek, Inc., ALLC's parent company, formed ALLC to purchase API, thus keeping
the Airtherm name for continuity of operations. In May 2000, ALLC agreed in the
Purchase Agreement to hire all of API's employees. Until the Amended Purchase
Agreement was executed four days before the sale closed, API absolutely had no
reason to believe the sale of its business would result in a plant closing affecting fifty
or more employees. When the Amended Purchase Agreement changed the section
3
This approach to applying the WARN Act's notice requirement should assist
buyers and sellers of businesses in knowing who holds WARN Act responsibility.
In implementing the WARN Act's sale-of-business exclusion, the Department of
Labor provided practical advice to employers: "It may be prudent for the buyer and
seller to determine the impacts of the sale on workers, and to arrange between them
for advance notice to be given to affected employees or their representative(s), if a
. . . plant closing is planned." 20 C.F.R. § 639.4(c)(2). Thus, both the seller and the
buyer must be vigilant as to who bears the notification duty should one of them
decide to close a plant. Indeed, the Department of Labor instructs buyers and sellers
to work together to assure compliance with the WARN Act.
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dealing with the hiring of all of API's employees, ALLC concomitantly promised API
that ALLC would hire a substantial number of API's employees such that fewer than
fifty employees would lose their jobs as a result of the sale of the business.
In the face of ALLC's assurances, why would API notify its employees of a
plant closing? There is no good answer to that question. A simple reading of the
WARN Act—with an eye toward its purpose—prescribes that no such notice was
required. Indeed, if API had given WARN Act notice to its employees in the face of
ALLC's assurances, one could imagine a situation in which no employee would
remain by the time the closing date arrived. ALLC, as the buyer of API's business as
a going concern, certainly would not be enthused by a vacant labor pool at the time
of closing. Thus, the sale-of-business exclusion and our precedent dictate that ALLC
became the employees' employer for WARN Act purposes once the sale of API's
business became final. Any WARN Act notice responsibilities fell on ALLC, and not
on API.
The District Court asked, "[D]oes the 'sale of business' exception apply in cases
like this, where assets are sold but the employees are not immediately or actually
transferred to the buyer as part of the sale?" Wilson, 2001 WL 34818807, at *3. This
question misses the mark because "nothing in [the] WARN [Act] requires a seller to
insist upon a contract term guaranteeing its employees continued employment with
the buyer." Int'l Alliance of Theatrical & Stage Employees & Moving Picture Mach.
Operators, AFL-CIO v. Compact Video Servs., Inc., 50 F.3d 1464, 1468 (9th Cir.),
cert. denied, 516 U.S. 987 (1995). Similarly, it is presumed that a sale of a business
as a going concern involves the hiring of the seller's employees unless something
indicates otherwise. Focusing on whether the seller terminated its employees'
employment is not the proper focus when analyzing potential WARN Act violations
involving the sale of a business as a going concern. Instead, the WARN Act takes a
"functional, common sense approach," Smullin, 420 F.3d at 839, attempting to
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determine who actually effects the plant closing. An example might illustrate why
the District Court's question lacked the proper focus. Assume that API terminated its
employees' employment on the day of the sale of its business as a going concern
without guaranteeing that its employees would gain employment with ALLC. But
ALLC had assured API that ALLC would hire a substantial number of API's
employees such that fewer than fifty employees would suffer an employment loss
under the WARN Act. On the day after the sale, ALLC hired all of API's employees,
including every employee that had been laid off by API over the past ten years. If we
were to apply the District Court's and the plaintiffs' interpretation of the WARN Act,
we would be required to hold API liable for failing to give WARN Act notice to its
employees regardless of the fact that all of API's employees were hired by the buyer.
The WARN Act does not compel such an absurd result. Without the benefit of
Smullin, the District Court wrongly focused on API's technical termination of its
employees' employment on the day of the sale rather than focusing on whether there
was a sale of a business as a going concern and on what API and ALLC anticipated
as to employee hiring.4
4
To be certain, the record paints a picture that API and ALLC may have
attempted to structure the sale of API in such a way as to avoid any successor labor
responsibilities for ALLC. Regardless of the effects of this conduct in the labor
relations arena, this appeal focuses on the WARN Act's sale-of-business exclusion.
Thus, a decision to technically terminate employment or close a plant to achieve a
desired effect on labor relations does not answer the questions of whether there is a
plant closing for purposes of the WARN Act or who has notification responsibility
if a plant closing occurs. See, e.g., Compact Video Servs., 50 F.3d at 1468.
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III.
For the reasons stated, we reverse the grant of summary judgment to the
plaintiffs and remand to the District Court to enter judgment in API's favor.5
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5
The District Court "compliment[ed] the parties on the quality of work, the
competent manner in which this case was tried and briefed, the collaboration of
counsel in the production of 125 joint exhibits, as well as numerous stipulations; and,
the agreement of the computations necessary for the various methods of calculations
necessary depending on the fact findings and legal conclusions made that govern the
remedy." Wilson v. Airtherm Prods., Inc., No. 2-01-CV-00055-WRW, slip op. at 4
(E.D. Ark. Sept. 29, 2004). We echo the District Court's compliments, repeating an
important sentiment expressed by this Circuit a few years ago: "Civil law is not
always practiced in a civil manner. We commend both attorneys in this difficult case
for their professionalism. They skillfully litigated the contentious issues and
zealously represented their clients without sacrificing civility, a linchpin of our legal
system. . . . We applaud their devotion to the highest standards of the law." Cisar v.
Home Depot U.S.A., Inc., 351 F.3d 800, 804 n.5 (8th Cir. 2003).
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