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Eighth Circuit finds economic downturn fell within “unforeseeable business circumstances” exception; approves abbreviated WARN Act notice for U.S. Steel

July 5th, 2012  |  Ron Miller

In United Steel Workers of America, Local 2660 v United States Steel Corp, the Eighth Circuit held that the “unforeseeable business circumstances” exception applied to U.S. Steel’s failure to give 60-days’ advance notice of a mass layoff as required by the WARN Act, after finding that the undisputed evidence demonstrated that the company’s abbreviated notice was caused by an unanticipated and dramatic economic downturn. Given the juxtaposition between unprecedented high demand for steel throughout most of 2008 and the unforeseeably precipitous drop in demand during the final quarter, U.S. Steel acted within the scope of commercially reasonable business judgment when it initially employed less drastic measures to weather the downturn, declared.

During the first three quarters of 2008, U.S. Steel reported some of the highest sales in its history and was operating at near capacity. When the economic downturn began in late 2008, the company’s initial response was to temporarily idle blast furnaces at its steelmaking facilities. As the economic crisis deepened, it completely shut down two steelmaking operations and laid off 313 employees at the iron ore plant involved in this dispute. Within just a matter of six days, the employer developed its idling and layoff plan, received approval from its board of directors, informed the union of its decision, and issued its WARN Act notice. The layoffs began four days after notice was given and continued over the next two weeks. However, by the end of the month, nearly all of the laid-off workers had been recalled.

Unforeseeable business circumstance. Alleging that U.S. Steel violated the WARN Act by failing to provide 60-day notice of the mass layoff, the union sued for damages. The employer sought summary judgment, arguing that the exception for unforeseeable business circumstances applied. It was undisputed that U.S. Steel’s blast furnace capacity utilization rate dropped from 92 percent to 46 percent over a five-month period in 2008, and that to operate profitably, a 65 percent capacity utilization rate was necessary. The district court granted summary judgment, concluding that unforeseeable business circumstances exemption applied, so the 60-day notice requirement did not apply.

Under the applicable regulations, 20 CFR Sec. 639.9(b)(1), “an important indicator of a business circumstance that is not reasonably foreseeable is that the circumstance is caused by some sudden, dramatic, and unexpected action or condition outside the employer’s control.” The union argued that the employer failed to present sufficient evidence that the effects of the economic downturn on the steelmaking industry were an unforeseeable business circumstance 60 days before the layoff began, given that the general economic downturn was well-known by that date. The union also asserted that the employer failed to present any evidence of how similarly situated employers responded to economic conditions.

Business judgment. The test for determining whether business circumstances were reasonably foreseeable “focuses on an employer’s business judgment,” and an employer “must exercise such commercially reasonable business judgment as would a similarly situated employer in predicting the demands of its particular market.” In this instance, the economic crisis of late 2008, when coupled with the dramatic decline in customer orders at U.S. Steel, constituted an unforeseeable business circumstance under the WARN Act, concluded the Eighth Circuit.

While the union correctly pointed out that the general economic crisis commenced prior to the sixtieth day before the layoff, the U.S. Steel countered that the sharply reduced demand for steel was not clear until after that time. Knowledge of an economic downturn alone does not bar application of the unforeseeable business circumstances exception, observed the appeals court. Rather, the court must consider the facts and circumstances that led to the layoffs in light of the history of the business and of the industry in which it operates.

Prior to the layoff, U.S. Steel had been implementing less drastic measures based on its past history during downturns. The company’s traditional methodology had not forecasted the unprecedented decline in capacity utilization rates in both the worldwide industry as well as the company. Thus, nothing in the record suggested that the extent of the economic downturn and its effects on the steel industry were probable anytime before late November 2008. Consequently, the undisputed evidence demonstrated that the abbreviated WARN Act notice given by the company was caused by an unanticipated and dramatic major economic downturn.