Lumber Hauling Company and Lumber Mill Constitute a Single Employer for Purposes of Triggering WARN Coverage

In contrast to its decision in the Air France case, the Ninth Circuit found that the employees of a construction company and a lumber company could be combined under a “single employer” theory for purposes of triggering coverage under the federal Worker Adjustment and Retraining Notification Act (the “WARN” Act); consequently, the employers’ failure to provide employees with 60 days advance notice of layoffs, as required under the WARN Act, violated the Act. The case, Childress v. Darby Lumber, Inc., was decided on February 6, 2004.

In Darby Lumber, the court applied an analysis similar to the “joint employer” test it applied in Air France to determine that the two defendant companies in Darby Lumber were “single employers.” Under the single employer test, there are four general factors that are examined: (1) common ownership; (2) common management; (3) centralized control of labor relations; and (4) interrelation of operations. While these factors were judicially developed in cases that arose under the Labor Management Relations Act, a similar analysis has been adopted by the Department of Labor for purposes of determining whether two or more business entities constitute a single employer under the WARN Act. See Department of Labor regulations at 20 CFR §639.3(a)(2). The single employer test took on significance in the Darby Lumber case because whether an employer is subject to the advanced notice obligations under WARN will depend on the size of its workforce and the number of employees affected by the layoffs. If either of the two employer defendants in that case had been sued alone, a WARN Act violation would not have been found because neither employer by itself employed the required number of employees to trigger WARN coverage.

The court found that the two companies were commonly owned and shared common directors and officers. More importantly, the court found that the decision to layoff employees at both companies were made by the same person who had incorporated one of the companies and was a substantial owner of stock in the other. Further, it was evident that the operations of one of the companies (a log hauling company) was dependent on the operations of the other (a lumber mill). Hence, when the decision was made to close the lumber mill, the log hauling company shut down operations just months thereafter.

From these facts, the court concluded that the factors that traditionally apply to determining single employer status were present in that case. The court further concluded that the defendants could not avail themselves of the “good faith” exception to liability under the WARN Act, because the defendants did not have “reasonable grounds” for believing that their layoff decisions had complied with the employer’s obligations under the Act.