St. John's University School of Law
American Bankruptcy Institute Law Review Staff
The Worker Adjustment and Retraining Notification Act ("WARN Act") provides that “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 order” to each impacted employee. In In re Art Van Furniture LLC, a bankruptcy court in Delaware held that COVID-19 falls within the scope of the "unforeseen business exception and the natural disaster exception to the WARN Act's 60-day notice requirement." On March 5, 2020, Art Van Furniture, LLC (“Art Van'') “publicly announced that it was liquidating and going out of business.” Subsequently, on March 8, 2020, Art Van filed its petition for relief under Chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) to implement a sale of the business. However, in the same week, the COVID-19 outbreak occurred which led to stay at home orders for non-essential businesses. As a result of these executive orders, “[o]n March 19, 2020, the proposed purchaser for the Levin Sale notified the Debtors that they would not proceed with the transaction" thus leading Art Van to issue a WARN notice to some of its employees stating that COVID-19 is why "the company can no longer support the wind-down of its retail operation," therefore terminating all of their staff on March 20, 2020. On March 23, 2020, certain former employees of Art Van filed a Class Action Adversary Proceeding Complaint for violation of the WARN Act against Art Van Furniture. Following an unsuccessful mediation, Art Van filed a Motion for Summary Judgment.
In considering the motion for summary judgment, the Delaware bankruptcy court noted it had to analyze two legal issues: (1) whether Art Van violated the WARN Act and (2) whether Art Van could avoid liability by proving any of the three affirmative defenses to the WARN Act: "the 'faltering company' exception; the 'unforeseen business circumstances' ("UBC") exception; or the 'natural disaster' exception."
Under the first legal issue of whether Art Van violated the WARN Act, the court held that Art Van was subject to the WARN Act as Art Van was engaging in business, such as “continuing operations with its employees for the retail sales of goods.”11
Under the first defense of the WARN Act, the faltering company defense, the court assessed this the actions Art Van took before announcing the terminations and found that the defense did not apply. The reason being that the Debtors "intended to continue their operations in the Chapter 11 bankruptcy case for the benefit of creditors;" therefore, "the Debtors were subject to an employer's WARN obligations."
Under the second defense of the WARN Act, the unforeseen business circumstances, an employer may order a plant closure of mass layoffs before the 60 day period if the closing or layoffs are caused by unforeseeable business circumstances at the time the notice would have been required. This defense requires the employer to prove that circumstances were unforeseeable and the layoffs were caused by the circumstance." Here, the court found that Art Van was in dire financial restraints which led to the Chapter 11 filing and the stay at home orders impacted their operations. Therefore, the facts supported finding that the COVID-19 caused the March 20, 2020 layoffs.
Finally, under the third affirmative defense of the Natural Disaster Exception, the WARN Act provides that notice is not required if plant closures and mass layoffs are the consequence of natural disasters.  Under this definition, COVID-19 was a natural disaster that "may be invoked under the natural disaster defense to the WARN Act." Finding that Art Van had demonstrated that it was entitled to the unforeseen business exception and the natural disaster exception to the WARN Act's 60-day notice requirement, the court granted the trustee’s motion for summary judgment and dismissed the complaint.
Generally, the WARN Act requires 60 days’ notice prior to plant closures and mass layoffs. However, according to the Delaware bankruptcy court, COVID-19 may be a valid excuse for not giving such notice under the unforeseen business circumstances and natural disaster exception to the WARN Act.
 See In re Art Van Furniture, LLC, 638 B.R. 523 (Bankr. D. Del. 2022).
 Id. at 528.
 Id. at 529.
 Id. at 531.
 See id. at 532.
11 See id. at 536.
 See id. at 533.
 See id. at 536.
 Id. at 540.