Court Nixes Teamsters’ WARN Claims Against Yellow

A designation as a liquidating fiduciary is a very rare exception to WARN Act liabilities, according to bankruptcy lawyers. (George Walker IV/Associated Press)

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A U.S. Bankruptcy Court for the District of Delaware judge decided Yellow Corp. was not liable for as much as $244 million in claims sought by the International Brotherhood of Teamsters related to an inability to meet employee protection regulations.

The union argued Yellow remained an operational entity after the onetime less-than-truckload carrier told more than 20,000 Teamster members they were being laid off due to the company shutting its doors and therefore was subject to the requirements of the Worker Adjustment and Retraining Notification Act.

Yellow argued it was unable to issue 60-day WARN Act notices as required by law.

Judge Craig Goldblatt on Feb. 26 found Yellow to be a “liquidating fiduciary,” rather than an employer, at the time it laid off the unionized employees. As a result, the company and its estate were not subject to WARN Act liabilities.

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The judge had to decide whether Yellow was engaged in its usual business activity when the employees were fired. A designation as a liquidating fiduciary is a very rare exception to WARN Act liabilities, according to bankruptcy lawyers.

And even if Goldblatt proved to be incorrect in his ruling, he said, the circumstances of the then No. 3-ranked LTL carrier would justify a reduction in damages from 60 days of back pay and benefits to 14 days of back pay and benefits.

The judge noted Yellow’s efforts to engage with the union; threatened strikes; failed approaches to Central States Pension Fund, which represented the largest share of the carrier’s pension obligations; struggles to refinance its debt load; and finally, Yellow customers finding alternative carriers over their concerns about its viability, that in turn became a “self-fulfilling prophecy.”

Previously, Goldblatt decided that while Yellow was entitled to provide less than 60 days’ notice, it had to say why it did so, and disagreement between the administrators and the union over the facts that would determine whether it was an employer or liquidating fiduciary needed to be settled.

A three-day trial took place Jan. 21-23 that culminated in Goldblatt’s Feb. 26 opinion.

Among the executives testifying at the trial were ex-CEO Darren Hawkins, now North American Chassis Pool Cooperative CEO, Chief Financial Officer Daniel Olivier and then Vice President for Human Resources Sarah Statlander.

Goldblatt decided that Yellow became a liquidating fiduciary on July 29, 2023, and therefore was not subject to WARN requirements when laying off its union employees on July 30, 2023.

“In the real world, the task of shutting down a large and complex business is typically a process that takes place over time. It cannot be accomplished just by flipping a switch. And that can make the task of drawing the line between when a defendant is a ‘business enterprise’ on the one hand and ‘liquidating fiduciary’ on the other a challenging one,” noted Goldblatt.

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“The guidance from the case law is, in large part, that ‘the more closely the activities resemble those of a business winding up its affairs, the more likely it is the entity is not subject to the WARN Act’ and vice versa,” he added.

Goldblatt said a key element of his findings was Yellow made its final delivery at 11:30 p.m. ET on July 29, 2023.

From then until noon on July 30 “the only part of the process left was to ensure all equipment was inside the gates and we had all of our employees back at our facilities before noon so that they could be outside of the gates when the closing occurred at noon Eastern,” Olivier told the court.

The WARN notices were sent to union leadership on July 30, 2023, and then to around 20,000 unionized employees the next day.

Yellow sought court protection on Aug. 6, 2023.

In the rush to liquidate the company, the company’s financial adviser wanted three weeks to prepare the bankruptcy paperwork, given the complexity; it received five days.

The Teamsters did not reply to a request for comment on the ruling.

Two other groups of former employees tentatively settled in January with Yellow’s administrators over the WARN claims shortly before the trial started, although settlement details have yet to emerge. The settlements are subject to court approval.