E-Alert Case Updates

United States District Court Finds Employer Liable for Failing to Provide Sixty-Day Notice before Restaurant Closure

Gray v. Walt Disney Co.
No. 10-3000 (D. Md. Jan. 3, 2013)
by Wayne Heavener, Law Clerk
Semmes, Bowen & Semmes (www.semmes.com)

In Gray v. Walt Disney World Co., the United States District Court for the District of Maryland held that defendant employers violated the Worker Adjustment and Retraining Notification (“WARN”) Act, 29 U.S.C. §2101 et seq., when they closed their restaurant, and then paid their employees for the sixty (60) days thereafter based upon averages derived from the previous six months of employment. The Court found that the sixty-day pay period could not supplant the WARN Act’s requirement for a sixty-day notice period prior to closure. While the employers could offset any potential damages in employee back pay owed under the WARN Act by the amounts paid to the employees within the sixty-day period, the employers could not offset full-time employees’ severance packages by the same amount. The Court ruled in favor of the employees with respect to liability under the WARN Act, but limited the back pay damages recoverable under the WARN Act by the amounts already paid during the sixty-day period.

Leonard Gray, Lee Evans, Debra Harris, and Krystal Payton (collectively, “Plaintiffs”) worked for the ESPN Zone in the Inner Harbor region of Baltimore, Maryland. Mr. Gray and Mr. Evans were full-time employees, entitled to coverage under the Disney Severance Pay Plan (“Disney Plan”), while Ms. Payton and Ms. Harris were part-time employees, not entitled to the Disney Plan. The ESPN Zone was owned by Zone Enterprises of Maryland LLC (“Zone”), which is a subsidiary of The Walt Disney Company (“Disney”). In 2010, Disney decided to close five ESPN Zone restaurants, which included the Inner Harbor location. On June 9, 2010, Plaintiffs were informed of the closing. On June 16, 2010, Plaintiffs were told that the restaurant was closed, and that they were being put on leave. In written separation agreements, Plaintiffs were informed that “they would remain employed for the next 60 days[,] . . . they did not have to show up for work[,] and their employment would terminate on August 15, 2010.” Gray v. Walt Disney Co., No. 10-3000, slip op. at 2 (D. Md. Jan. 3, 2013). Plaintiffs also received written materials, informing them that they would receive a regular weekly paycheck for the next sixty (60) days (“Notice Pay”); the amount of pay was based upon weekly averages for the prior six (6) months. Those employees eligible for severance pay would have their severance package reduced by the pay received over the sixty-day period, and receive any outstanding severance in a lump sum at the end.

In October 2010, at the conclusion of their Notice Pay, Plaintiffs sued Zone and Disney (collectively, “Defendants”) for alleged violations of the WARN Act. Citing § 2102(a), which provides that an employer may not order “a plant closing . . . until the end of a 60-day period after the employer serves written notice of such an order” on affected employees, Plaintiffs claim that they failed to receive requisite notice. Plaintiffs also alleged that the Notice Pay was insufficient under § 2104(a)(1) of the WARN Act, which provides that an employer owes employees affected by a closing back pay “for each day of violation at a rate of compensation not less than the higher of . . . the average regular rate received by such employee during the last 3 years of the employee’s employment; or . . . the final regular rate received by such employee.” Plaintiffs sought class certification for all similarly situated former ESPN Zone employees. Defendants moved for summary judgment, and argued that Plaintiffs effectively remained employed during the Notice Pay period; therefore, Plaintiffs were put on notice for the requisite sixty (60) days before their actual “employment loss.” Plaintiffs filed a cross motion for partial summary judgment with respect to liability, and argued that Defendants should not be able to lessen any prospective back pay damages awarded under the WARN Act by the Notice Pay. The United States District Court for the District of Maryland held oral argument on the motions.

The Court ordered both motions granted in part and denied in part, finding Defendants liable under the WARN Act, but also holding that Defendants could offset back pay damages by the Notice Pay provided to Plaintiffs; however, Defendants could not reduce the severance package owed to full-time employees under the Disney Plan by the Notice Pay. The Court found that Defendants violated the WARN Act because “employment loss” occurred on the date the restaurant was closed, and that the Notice Pay plan based on Plaintiffs’ speculative earnings could not supplant the WARN Act’s sixty-day notice requirement. Hence, the Court granted Plaintiffs’ motion for partial summary judgment with respect to the issue of liability. However, the Court found that the Notice Pay, standing as a proxy for Plaintiffs’ potential wages over the sixty-day period, could offset the potential amount of back pay damages Plaintiffs would otherwise be owed under § 2105(a)(2) of the WARN Act. Accordingly, the Court granted Defendants’ motion for summary judgment in part, limiting potential back pay damages. While Defendants could limit their potential back pay damages by the Notice Pay under § 2105(a)(2), Defendants could not reduce the severance package owed full-time employees under the Disney Plan by the Notice Pay provided. Plaintiffs were entitled to their full severance pay as a matter of law. Having ruled on the parties’ motions for summary judgment, the Court found that discovery and briefing related to class certification and damages could commence.