In Pennington v. Fluor Corp., Nos. 21-1141, 21-1143, 2021 U.S. App. LEXIS 35307 (4th Cir. Nov. 30, 2021), the U.S. Court of Appeals for the Fourth Circuit recently dismissed a federal Worker Adjustment and Retraining Notification Act (WARN) claim that arose after construction ended at a South Carolina nuclear power plant.
Standing alone, this case is significant because a U.S. Court of Appeal opined on WARN — a relatively uncommon occurrence. Further, for what appears to be the first time, the Fourth Circuit (1) analyzed potential “single employer” WARN liability between a principal client and the independent contractors it hired; and (2) picked and applied a five-factor test delineated by the federal Department of Labor (DOL) to resolve the issue.
SCANA, a public utility company, hired Westinghouse Electric Company (WEC) to design and manufacture two nuclear reactors in South Carolina. WEC in turn hired Fluor Corporation, a subcontractor, to assist with construction. From the outset, the project faced various financial and scheduling setbacks, ultimately leading to WEC’s bankruptcy in March 2017. Despite this, the parties reached an interim agreement to continue the project, where SCANA began paying Fluor directly, WEC continued working at the site, and Fluor continued to manage on-site construction based on its agreement with WEC.
Project work later stopped when SCANA was forced to end the project’s construction. As a result, WEC and Fluor laid off approximately 4,000 workers with no notice — and the workers filed a class action complaint against SCANA and Fluor in federal court, alleging violations of WARN.
What Is the WARN Act?
WARN requires employers that employ 100 or more employees, excluding part-time employees, or 100 or more employees who in the aggregate work at least 4,000 hours per week (exclusive of overtime hours), to give written notice to affected employees and certain governmental offices of a covered facility closing or mass layoff at least 60 days prior to such action. Further, as a general rule:
- A WARN notice must be specific and include information such as which employees will be affected and when to expect separation from employment.
- A WARN notice regarding a facility closing or layoff focuses on “loss of employment,” which generally involves a termination without cause and without any intent on the part of the employer to rehire (within certain defined regulatory parameters).
- Whether a WARN notice is appropriate turns on the number of employees to be terminated and their employment or job site location.
Among other things, to be liable under WARN, the employer must order the facility closing or mass layoff. However, sometimes different legal entities may be considered a “single employer” for purposes of WARN compliance, depending largely on the amount of interdependence. Courts around the nation have employed various tests (or combinations of tests) to determine a “single employer” under WARN. However, before the decision in Pennington, the Fourth Circuit had not explicitly opined on which test to apply.
The crux of the Pennington case came down to who constitutes an “employer” under WARN. When viewing SCANA’s and Fluor’s actions in separate legal silos for purposes of coverage, neither appeared to violate WARN. Thus, the plaintiff workers pushed the novel theory that Fluor, a construction subcontractor with no affiliation to SCANA, constituted a single WARN employer with SCANA, a public utility company that owned the job site, primarily because SCANA’s project shutdown allegedly demonstrated substantial control over Fluor. The lower court disagreed, granting summary judgment for SCANA and Fluor on all counts. The Fourth Circuit, in turn, affirmed the lower court’s ruling on appeal.
The Fourth Circuit Decision
In reaching its decision, the Fourth Circuit first pointed to the plain language of WARN, explaining that “the plaintiffs do not have a valid claim against SCANA” because “[n]one of them were in any common sense of the word ‘employees’ of SCANA; instead, they either worked for WEC” or Fluor.
The Court then turned to whether SCANA and Fluor amounted to a “single employer” under WARN. Agreeing with the trial court, as well as the Third and Fifth Circuits, the Fourth Circuit looked to the DOL’s list of five non-exhaustive factors that examine:
“(i) common ownership, (ii) common directors and/or officers, (iii) de facto exercise of control, (iv) unity of personnel policies emanating from a common source, and (v) the dependency of operations.”
The Fourth Circuit concluded that none of these factors favored the plaintiffs. The Court quickly dispensed with four of the factors, noting that Fluor shared no ownership, directors or officers with SCANA; had no unified personnel policies with SCANA (as Fluor hired, terminated and paid its own personnel); and was not operationally dependent on SCANA (as Fluor operated a different business in an entirely different industry and continued to operate after the project was shut down).
The Court then spent significant time on the plaintiffs’ theory of de facto control. It expounded that this factor boils down to “a longstanding theory of affiliate liability that holds parents accountable where they are directly liable for the actions of a subsidiary.” The court stressed that SCANA’s decision to end the project, without more, was insufficient to show de facto control over Fluor. The Court then observed that “[d]irect liability is less applicable to a situation” involving unaffiliated companies and has previously been applied only to certain parent-subsidiary and lender-borrower relationships.
Finally, the Fourth Circuit concurred with the district court that de facto control did not exist, as “SCANA’s control of Fluor and WEC was largely within the expected bounds of a principal client’s relationship with its hired contractor or subcontractor.”
- For the first time, the Fourth Circuit concluded that the DOL’s five-factor test (versus other potential tests) should be applied when analyzing potential single-employer liability under WARN. Although the DOL factors are not a perfect fit for situations involving independent contractors — how often, for example, will a contractor share owners, directors or officers with its principal client? — this decision provides welcome guidance in an area of the law that is often ambiguous.
- Further, the Fourth Circuit’s decision provides clarity on how to apply the DOL factors, focusing on the job site when examining the unity of personnel policies and de facto control factors while, for the dependency-of-operations factor, zooming out beyond the specific project and reviewing the type of industry, number of other ongoing projects, and continuing operations of each entity.
- Lastly, the Fourth Circuit thoroughly rejected the idea that a principal client’s shutdown of a site that it owns, without more, can create WARN liability to a contractor’s subsequently laid-off employees.
For questions about the Pennington decision or federal WARN compliance generally, please contact the authors of this article, your McGuireWoods contact or a member of the firm’s labor and employment team.