The Worker Adjustment and Retraining Notification Act, 29 U.S.C. §2101 et seq. (1988) (WARN or the Act), requires advance notice of large layoffs and awards damages when the required notice is not given. In a WARN situation, there is always a company in financial difficulty, and plaintiffs seeking damages under the Act have become increasingly aggressive in seeking an entity with greater asset liquidity than what the failed company has to offer. Sometimes these plaintiffs target the financial institution that stopped lending money to the failed company prior to the layoffs. When the failed company is a portfolio company of a private equity fund, the plaintiffs may go after the private equity fund, asserting that together, the fund and the failed portfolio company constitute a single employer.

In one WARN case brought against a lender, the U.S. Court of Appeals for the Third Circuit ruled that when plaintiffs assert that another party should be deemed a single “business enterprise” with the failed company, the courts should apply the five-factor test laid out in the Department of Labor’s WARN regulations:

(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.