The three-judge panel of the 5th U.S. Circuit Court of Appeals upheld a bankruptcy judge's ruling in a lawsuit brought by some company employees. The employees contended Flexible Flyer violated the Worker Adjustment and Retraining Notification Act.
The federal law requires employers of companies with 100 workers or more to provide notice 60 days before a plant closing or mass layoffs.
A bankruptcy judge found in 2010 that the shutdown fell under the "unforeseen circumstances" exception in the WARN Act. The judge said a loss of funding caused the layoffs, which were not planned.
The court cited testimony that Flexible Flyer officials talked with a bankruptcy consultant a month before the layoffs. The judge said those talks didn't mean the layoffs were foreseeable. He said Flexible Flyer was still trying to preserve the business and believed it might succeed until it lost all its financing.
Flexible Flyer employed about 100 people in West Point. It reopened with a new owner but shut down for good in 2007. It was the third plant to close in West Point that year. Sara Lee Food closed, leaving more than 1,200 people unemployed. Best Textiles International, a tablecloth and linen producer, closed and moved 30 jobs to Cambodia and Mexico.
The 5th Circuit panel, in Monday's decision, said the WARN Act is intended to encourage employers to take all reasonable actions to preserve the company and the jobs.
"Holding Flexible Flyer liable for a WARN Act violation on the facts found by the bankruptcy court would serve only to encourage employers to abandon companies even when there is some probability of some success," the panel said.
The panel said Flexible Flyer's owner pursued options to save the business until funding was cut off.
"Termination of outside funding may have always been possible, but it cannot be said on the record before us that Flexible Flyer probably knew during or before July 2005 that it would be stripped of funding, causing an immediate shutdown. This case presents a convincing example of an event that meets the unforeseeable business circumstance exception," the panel said.