The Worker Adjustment and Retraining Notification (WARN) Act requires employers to notify employees at least 60 days before a mass layoff. But as Calloway v. Caraco Pharmaceutical Laboratories shows, this is often easier said than done. In this case, the U.S. Court of Appeals for the Sixth Circuit had to decide whether the Food and Drug Administration’s (FDA’s) seizure of the employer’s products — which led to layoffs — was unforeseeable.

History of violations

The employer was a pharmaceutical manufacturer subject to FDA regulations and periodic inspections. If, after an inspection, the FDA finds that a company isn’t in compliance with regulations, it can issue a Form 483 or a more serious warning letter that notifies the industry about violations of regulatory significance.

The plaintiff worked for the pharmaceutical company from 2006 until he was terminated on June 29, 2009, as part of a mass layoff. Several years before the layoff, the FDA had issued the company warning letters, one in 2000 followed by Forms 483 and another in 2002. The letters stated that, if the company failed to correct the violations, the FDA could take enforcement action without further notice.

The company further received Forms 483 in:

•  2005, for which it took corrective action,
•  2006 and 2007, at which time the company informed the FDA that it was taking corrective action, and
• 2008, when the company decided that the violations could represent broader issues and hired an independent consulting firm to conduct an audit of its facilities.

The consulting firm found that the company faced the real possibility of an FDA enforcement action and a mass seizure of its products. The consultant also felt that, if the company were more aggressive in demonstrating that it could take significant corrective action, the FDA might give it another chance. Otherwise it would be difficult to prevent an enforcement action.

Failed efforts

The company began taking remediation efforts. However, it received a formal warning letter from the FDA in October 2008 stating that its failure to fix the violations could result in legal action without further notice — including seizure and injunction. The company explained to the FDA the actions it was taking to correct the violations. The agency responded that such actions were positive, yet it still issued another Form 483 for additional violations. In response, the company recalled some of its products.

After issuing yet another Form 483, the FDA served the company with a complaint and warrant for arrest on June 24, 2009. It also seized various products from two of the company’s facilities. Two days later, the company began a mass layoff of workers at those facilities.

60 days’ notice

The WARN Act requires employers to give 60 days’ notice to affected employees before a mass layoff. But full notice isn’t required if the closing is caused by business circumstances that weren’t reasonably foreseeable at the time that the notice would have been required. The plaintiff in this case brought a class action against his employer alleging violations of the WARN Act because employees didn’t receive the requisite notification of the mass layoff.

The company argued that seizure of its products by the FDA was an unforeseeable business circumstance and, therefore, it was excused from providing the notice. However, the trial court ruled in favor of the plaintiff, finding that the company had failed to comply with the act’s notification provision when it closed its drug manufacturing operation.

The appeals court affirmed, concluding that the lower court didn’t err in making the factual finding that the mass seizure of the company’s products by the FDA wasn’t unforeseeable. In the court’s view, the company didn’t make adequate changes to its business practices after receiving warning letters from the FDA. And, based on its failure to resolve serious issues cited in FDA warning letters and on its own consultant’s warnings, the company should have known that an enforcement action was imminent.

The court further stated that, even though the company took some action — including making recalls — doing so wasn’t significant enough. The FDA’s enforcement action of a mass seizure was essentially inevitable at that point.

Proactive stance

To prevent an adverse ruling against your organization, familiarize yourself with the WARN Act and its notification require- ment. Even if you don’t have an exact date for layoffs, give employees written notice well in advance. 

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