The U.S. District Court for the District of Delaware affirmed that Yellow Corp. met the "faltering company" exception to federal WARN Act notice requirements when it terminated 22,000 employees during its 2023 shutdown, finding that the company was actively seeking capital and provided sufficient notice under the circumstances. However, the court also ruled that Yellow Corp. remained liable under New Jersey's WARN Act, which does not provide the same statutory exceptions as federal law.
In the case of International Brotherhood of Teamsters v. Yellow Corp. (In re Yellow Corp.), Case No. 25-307, 2026 WL 1855837 (D. Del. June 29, 2026), the U.S. District Court for the District of Delaware (the court) affirmed the decision of the Bankruptcy Court, which disallowed federal Worker Adjustment and Retraining Notification Act (the WARN Act) claims filed by numerous creditors. In particular, the court examined the statutory notice requirements associated with the WARN Act, the applicability of the exceptions to the WARN Act notice requirements, and what it means to be a “faltering company” within the WARN Act exception.
In this case, Yellow Corp. (the debtor), and its related affiliates, was one of the largest trucking companies in the United States. In 2022 and 2023, the debtor was in the midst of trying to reduce certain redundancies associated with its prior acquisitions of former competitors. As part of implementing these efforts, the debtor had to negotiate with various unions. During 2023, while negotiating with these unions, the debtor was experiencing significant cash liquidity issues. Eventually, in July 2023, the debtor, due to its liquidity issues, failed to make its requisite contribution payments to a certain pension fund. In turn, this led one of the unions to issue a strike notice. The notice set the strike for July 23, 2023, at midnight. Unfortunately for the debtor and its employees, as a result of the issuance of the strike notice, many of the debtor’s customers switched to other carriers, eventually creating a “domino effect” that virtually crippled the debtor’s business.
This “domino effect” was so detrimental that the union eventually called off the strike within hours of midnight on July 23; however, by this time, it was too late. As a consequence, the debtor’s board of directors met on July 26, 2023, and decided that they had no alternative but to liquidate. On July 26, the debtor’s professionals began to prepare for a bankruptcy filing and for a company shutdown on July 30. As noted by the court, the “record reflects that from July 26 to July 30, Yellow’s human resources and legal teams worked around the clock planning for the shutdown.”
Eventually, on July 30, 2023, at noon, the debtor terminated 22,000 employees. Later that afternoon, the debtor issued WARN Act notices to every affected union, as well as to every affected union employee. On August 6, 2023, the debtor filed for bankruptcy.
Subsequent to the commencement of the bankruptcy cases, the unions filed various proofs of claim and adversary proceedings against the debtor, alleging both federal and state WARN Act liability. Following discovery, the parties filed cross-motions for summary judgment.
On Dec. 19, 2024, the Bankruptcy Court issued its decisions on the cross-summary judgment motions.
In rejecting the federal WARN Act claims, the Bankruptcy Court held that the debtor satisfied the “faltering company” and “unforeseeable business circumstances” exceptions. However, the Bankruptcy Court also found that the debtor could not “avail itself” to those exceptions because its notices “did not contain enough facts adequately to justify the reduced notice” and, as such, granted summary judgment in the unions’ favor on those exceptions. The Bankruptcy Court also found that for purposes of New Jersey’s WARN Act claims (which do not provide for either the “faltering company” or “unforeseeable business circumstances” exceptions), the debtor was an employer and, therefore, subject to liability under the New Jersey statute.
Notably, the Bankruptcy Court, as part of the summary judgment rulings, did not decide the issues of whether the debtor was an employer when it laid off the employees on July 30 and whether the debtor, to the extent it was liable, could warrant a reduction in liability based upon the WARN Act’s good faith provisions.
Eventually, the Bankruptcy Court, following a three-day trial, ruled that the debtor was not an employer when it laid off the employees on July 30 because “it had completed its last delivery to a customer” on July 29, 2023. As such, the Bankruptcy Court concluded that the debtor was no longer operating as a “business enterprise” but, rather, was operating as a “liquidating fiduciary.” In addition, the Bankruptcy Court found that, to the extent the debtor had any liability under the WARN Act, the damages would have to be reduced due to the “debtor’s good faith efforts to comply with the statute.”
Subsequent to the issuance of the Bankruptcy Court’s decision, the unions appealed (and the debtor eventually filed a timely cross appeal). Upon appeal, the court found that the debtor met the “faltering company” exception and that the debtor’s WARN Act notice was appropriate. Accordingly, the court affirmed the Bankruptcy Court’s decision disallowing the federal WARN Act claims. The court also affirmed the Bankruptcy Court’s decision sustaining the claims under the New Jersey WARN Act.
In its decision, the court first analyzed the “faltering company” exception. According to the court, this exception excuses the WARN Act’s 60-day notice requirement if, at the time notice would have been required, the employer was “actively seeking capital or business” that would have “enabled the employer to avoid or postpone the shutdown,” and the employer “reasonably and in good faith believed” that providing the required WARN notice “would have precluded the employer from obtaining the needed capital or business.”
Finding that the Bankruptcy Court was correct in its determination that the debtor met this exception, the court found that the record supported the notion that the debtor was actively seeking capital at the time it would have been required to issue the requisite notice and that this exception could still be met even if the debtor’s financing efforts were unsuccessful. In reaching this conclusion, the court expressly rejected the unions’ argument that the debtor was not actively seeking capital at the time the notices were required to be met and did not “reasonably and in good faith believe” that issuing the requisite WARN Act notice would impede the debtor’s efforts to obtain capital. In dismissing this “near impossibility” argument, the court found that every company that shuts down “presumably did so” because it was ultimately unable to obtain additional financing.
The court also found that the debtor’s notice was sufficient as a matter of law. While the court agreed with the Bankruptcy Court that this was a “close call,” the court, unlike the Bankruptcy Court, found the notice to be sufficient as a matter of law and made clear to an employee that they were receiving the notice “on a shortened period because the company’s efforts to obtain financing and business necessary to survive failed.” According to the court, this made the notice sufficient under the circumstances.
The court also affirmed the Bankruptcy Court’s findings that the debtor, for purposes of New Jersey’s WARN Act, was an employer on July 30 and, as such, could be held liable for New Jersey WARN Act claims.
While relatively straightforward, this opinion provides some additional clarity on what constitutes an appropriate WARN Act notice and when such notice should be provided. It also provides some clarification regarding the statutory exceptions to the WARN Act notice requirements while, at the same time, clarifying that while many states have modeled their statutes upon the federal WARN Act, not all of the state statutes are identical, and an employer can still have state law liability even if they complied with the notice requirements under federal law.
Lawrence J. Kotler is a partner and co-chair of the bankruptcy and fiduciary representations division of the business reorganization and financial restructuring practice group at Duane Morris.
Reprinted with permission from Delaware Business Court Insider, ALM Media Properties LLC. All rights reserved.
