United States Bankruptcy Court in New York. REUTERS/Andrew Kelly

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  • COVID-19 was unpredictable and a natural disaster, judge says
  • A furniture company was preparing for bankruptcy when the pandemic began
  • Ruling adds to split among federal judges

(Reuters) – A U.S. bankruptcy judge in Delaware has ruled that the COVID-19 pandemic was an unforeseeable natural disaster that exempted bankrupt retailer Art Van Furniture LLC from complying with a federal law requiring notice of mass layoffs.

decision by U.S. Bankruptcy Judge Christopher Sontchi on Monday deepens the split among federal judges over the scope of the Worker Adjustment and Retraining Notification Act (WARN), which requires at least 60 days notice before layoffs take place , like several courts of appeal consider the problem.

WARN Act liability can be costly for businesses, with potential penalties of tens of thousands of dollars per employee. Business groups have urged courts to rule that the pandemic was both an “unforeseeable business circumstance” and a natural disaster, exempting the resulting layoffs from WARN Act coverage.

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Art Van, which operated 170 stores across the Midwest, had filed for bankruptcy at the start of the pandemic in March 2020.

The company then abruptly laid off thousands of workers after the pandemic forced it to close stores, abandoning plans to scale back operations more slowly, according to court documents.

Sontchi on Monday accepted an offer from Art Van’s bankruptcy trustee for summary judgment in a class action lawsuit proposed in 2020 by a group of former employees. They claimed the struggling company used the pandemic as a pretext to cut their jobs without giving notice as required by the WARN Act.

Sonchi rejected plaintiffs’ claims that Art Van could have explored alternatives to layoffs, such as temporary furloughs.

“COVID-19 was the proverbial ‘straw that broke the camel’s back,'” he wrote.

Pachulski Stang Ziehl & Jones attorneys who represent Art Van’s trustee did not immediately respond to a request for comment. Neither did Michael Joyce of Joyce LLC, which represents the plaintiffs.

The New Orleans-based U.S. 5th Circuit Court of Appeals is due to hear arguments on April 5 in a bid to revive WARN Act claims against a gas drilling company. The district court judge in that case said, like Sontchi, that the pandemic was a natural disaster that deserved an exemption from the law.

But other judges said the WARN law still applied despite the unforeseen nature of the pandemic because COVID-19 did not directly cause any layoffs.

A Florida district court judge last year refused to dismiss a lawsuit over mass layoffs by Enterprise Rent A Car, saying they were triggered by a drop in air travel and the slowdown economic. Enterprise withdrew its appeal after settling the case.

The case is Stewart v. Art Van Furniture LLC, US Bankruptcy Court for the District of Delaware, No. 20-50548.

For Applicants: Michael Joyce of Joyce LLC

For the Trustee: Bradford Sandler of Pachulski Stang Ziehl & Jones

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Business groups: Pandemic layoffs did not require notice

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