Vedder Price Nixes Substantial WARN Act Judgment Against Government Contractor Client
Vedder Price is pleased to announce that it secured a Fourth Circuit reversal of a six-figure WARN Act judgment against its client, FCI Enterprises, LLC (“FCI”), a federal government contractor based in Chantilly, Virginia. Washington-based Litigation Shareholder Anand Ramana tried the case and argued the appeal for FCI.
Background
For decades, FCI provided high-end engineering services to the United States military at government facilities across the country. From 2016 to October 2018, however, it lost over 40 percent of its annual revenues. Despite FCI’s aggressive search for financing and government contract awards, FCI’s institutional lender swept all of FCI’s funds without notice on October 4, 2018. FCI was forced to shut down overnight, and it lacked funds to pay its employees their paychecks scheduled to be issued the next morning. FCI sold its government contracts in the following weeks, and a vast majority of FCI’s employees were hired by new contractors at the same or increased salaries.
Even so, 22 former employees sued FCI in the U.S. District Court for the Eastern District of Virginia. The plaintiffs asserted claims under the federal WARN Act because FCI did not provide 60 days’ notice of their layoffs and under the Fair Labor Standards Act (FLSA) to recover the minimum wage for alleged unpaid work. They also claimed attorneys’ fees under both of those statutes. Curiously, the plaintiffs did not advance any common law breach of contract or state statutory wage claims to recover the amount of their unpaid final paychecks.
The plaintiffs rebuffed FCI’s numerous settlement offers, and the parties tried the case before a jury in October 2019. At trial, FCI argued that (1) the WARN Act did not apply because FCI’s shutdown did not result in the termination of at least 50 employees working at any single location; (2) FCI did not have enough full-time employees to be covered by the WARN Act; and (3) the FLSA was inapplicable to high-end engineers and corporate officers like the plaintiffs. At the conclusion of the trial, the jury issued a complete defense verdict on the FLSA claim. However, the jury advised the district court to enter a judgment against FCI on the WARN Act claim. The district court did so, concluding that all of FCI’s employees permanently working around the country should be counted when determining the number of employees working at FCI’s Chantilly headquarters, and that FCI had enough full-time employees to be covered by the WARN Act.
Decision
On appeal, the Fourth Circuit reversed the district court’s WARN judgment against FCI. The appellate court specifically held that the district court incorrectly counted the number of FCI’s full-time employees eight months before the shutdown, instead of counting them as of 60 days before the layoffs as required by the WARN regulations. Counted on the proper date, FCI was too small for the WARN Act to apply. Thus, the appellate court directed the district court to enter a final judgment on all counts for FCI.
The Fourth Circuit’s published opinion is important not necessarily for what it held—that FCI was too small for WARN Act coverage—but rather by what it did not address. The appellate court declined to analyze the issue of whether the district court properly aggregated employees working around the country to a single site of employment in Virginia in order to trigger the WARN Act. That undisturbed district court ruling is directly at odds with at least four other federal appellate circuit decisions from around the nation. D.C. Area government contractors now must be aware that at least one district court in northern Virginia has held that the WARN Act may apply when a small government contractor terminates employees working at government facilities around the country.
“I’m proud to serve local government contractors in legal distress,” said Mr. Ramana. “I am gratified that the Fourth Circuit reversed the district court’s judgment, granting our client a complete victory while setting precedent in this important area of the law.”
Vedder Thinking | News Vedder Price Nixes Substantial WARN Act Judgment Against Government Contractor Client
Case Study
June 30, 2021
Vedder Price is pleased to announce that it secured a Fourth Circuit reversal of a six-figure WARN Act judgment against its client, FCI Enterprises, LLC (“FCI”), a federal government contractor based in Chantilly, Virginia. Washington-based Litigation Shareholder Anand Ramana tried the case and argued the appeal for FCI.
Background
For decades, FCI provided high-end engineering services to the United States military at government facilities across the country. From 2016 to October 2018, however, it lost over 40 percent of its annual revenues. Despite FCI’s aggressive search for financing and government contract awards, FCI’s institutional lender swept all of FCI’s funds without notice on October 4, 2018. FCI was forced to shut down overnight, and it lacked funds to pay its employees their paychecks scheduled to be issued the next morning. FCI sold its government contracts in the following weeks, and a vast majority of FCI’s employees were hired by new contractors at the same or increased salaries.
Even so, 22 former employees sued FCI in the U.S. District Court for the Eastern District of Virginia. The plaintiffs asserted claims under the federal WARN Act because FCI did not provide 60 days’ notice of their layoffs and under the Fair Labor Standards Act (FLSA) to recover the minimum wage for alleged unpaid work. They also claimed attorneys’ fees under both of those statutes. Curiously, the plaintiffs did not advance any common law breach of contract or state statutory wage claims to recover the amount of their unpaid final paychecks.
The plaintiffs rebuffed FCI’s numerous settlement offers, and the parties tried the case before a jury in October 2019. At trial, FCI argued that (1) the WARN Act did not apply because FCI’s shutdown did not result in the termination of at least 50 employees working at any single location; (2) FCI did not have enough full-time employees to be covered by the WARN Act; and (3) the FLSA was inapplicable to high-end engineers and corporate officers like the plaintiffs. At the conclusion of the trial, the jury issued a complete defense verdict on the FLSA claim. However, the jury advised the district court to enter a judgment against FCI on the WARN Act claim. The district court did so, concluding that all of FCI’s employees permanently working around the country should be counted when determining the number of employees working at FCI’s Chantilly headquarters, and that FCI had enough full-time employees to be covered by the WARN Act.
Decision
On appeal, the Fourth Circuit reversed the district court’s WARN judgment against FCI. The appellate court specifically held that the district court incorrectly counted the number of FCI’s full-time employees eight months before the shutdown, instead of counting them as of 60 days before the layoffs as required by the WARN regulations. Counted on the proper date, FCI was too small for the WARN Act to apply. Thus, the appellate court directed the district court to enter a final judgment on all counts for FCI.
The Fourth Circuit’s published opinion is important not necessarily for what it held—that FCI was too small for WARN Act coverage—but rather by what it did not address. The appellate court declined to analyze the issue of whether the district court properly aggregated employees working around the country to a single site of employment in Virginia in order to trigger the WARN Act. That undisturbed district court ruling is directly at odds with at least four other federal appellate circuit decisions from around the nation. D.C. Area government contractors now must be aware that at least one district court in northern Virginia has held that the WARN Act may apply when a small government contractor terminates employees working at government facilities around the country.
“I’m proud to serve local government contractors in legal distress,” said Mr. Ramana. “I am gratified that the Fourth Circuit reversed the district court’s judgment, granting our client a complete victory while setting precedent in this important area of the law.”
