A major concern for directors and officers of a company when approaching a liquidation is the risk of being personally liable for claims under federal or state Worker Adjustment and Retraining Notification (“WARN”) laws. Even when shutting down a failing business, directors and officers risk personal liability for months of future wages to the extent employees are not given significant advance notice of a potential shutdown.
A key exception to exposure to such liability has been the subject of extensive litigation in the recent chapter 11 cases of trucking company Yellow Corporation (“Yellow” or the “Company”). A recent decision from the U.S. District Court for the District of Delaware (the “District Court”), In re Yellow Corp., 2026 WL 1855837 (D. Del. June 29, 2026), provides guidance to executives as to the circumstances where they may be insulated from liability in a sudden and unexpected business shutdown.
On June 29, 2026, the District Court affirmed the Bankruptcy Court for the District of Delaware’s (the “Bankruptcy Court”) disallowance of federal WARN Act claims asserted against Yellow Corporation after approximately 22,000 employees were laid off without advance notice. The District Court held that Yellow satisfied the WARN Act’s “faltering company” exception to the typical 60-day notice requirement and that its WARN notice adequately explained the basis for invoking that exception.
How We Got Here
Yellow, once one of the largest unionized less-than-truckload freight carriers in North America, filed for chapter 11 on August 6, 2023, following liquidity challenges and failed negotiations with its unions. Just days prior to seeking chapter 11 relief, the Company laid off approximately 22,000 of its union employees without providing the proper 60 days’ advance notice. Yellow relied on statutory and judicial exceptions to the WARN Act’s 60-day notice requirement, asserting the “unforeseeable business circumstances,” “faltering company,” and “liquidating fiduciary” exceptions to WARN. The “faltering company” exception applies when an employer is actively seeking financing or business that could avoid a shutdown and reasonably believes that providing notice would jeopardize those efforts; the “unforeseeable business circumstances” exception applies when layoffs result from events the employer could not reasonably foresee; and the “liquidating fiduciary” doctrine provides that a company that has ceased operations and is merely winding down is no longer an “employer” subject to the WARN Act.
The International Brotherhood of Teamsters and other unions asserted claims against Yellow for failure to provide advance notice under both the federal WARN Act and the New Jersey WARN Act. On summary judgment as to the sufficiency of Yellow’s WARN Act defenses, the Bankruptcy Court concluded that Yellow substantively qualified for the federal WARN Act’s “faltering company” and “unforeseeable business circumstances” exceptions, but held Yellow could not invoke these defenses because the WARN layoff notices lacked sufficient detail. The Bankruptcy Court found that Yellow was an “employer” subject to the New Jersey WARN Act. Following trial, the Bankruptcy Court held that at the time the layoff notices were issued, Yellow was operating as a “liquidating fiduciary” within the meaning of the federal WARN Act rather than an employer, and was therefore not required to provide notice. The unions appealed the final order disallowing the federal WARN Act claims.
The District Court affirmed the dismissal of the federal WARN Act claims on alternative grounds, finding that Yellow satisfied the “faltering company” statutory exception and that its WARN layoff notices were sufficient. The District Court also affirmed the Bankruptcy Court’s ruling that Yellow remained an “employer” under the New Jersey WARN Act. Because the exception independently barred the federal WARN Act claims, the District Court declined to address the Bankruptcy Court’s alternative rulings that Yellow was no longer an “employer” under the “liquidating fiduciary” doctrine or that its liability should be reduced based on its good-faith efforts to comply with the statute. The Teamsters have appealed this decision to the U.S. Court of Appeals for the Third Circuit.
Key Takeaways for Employers Facing Financial Distress
This Delaware District Court decision provides persuasive authority for courts and practical guidance for financially distressed employers considering whether to rely on the WARN Act’s exceptions to its notice requirements, with four principal takeaways.
- The decision clarifies the federal WARN Act’s statutory “faltering company” exception, which applies when an employer is actively seeking capital or business that could avoid or postpone a shutdown. Because Yellow’s layoffs occurred on July 30, 2023, the relevant inquiry was whether the Company was actively seeking capital approximately 60 days earlier. The District Court concluded that Yellow satisfied this requirement because it was actively pursuing refinancing and new investment at that time through its investment banker, Ducera, and reasonably believed those efforts could avoid or postpone a shutdown. The District Court also rejected the unions’ argument that the exception became unavailable once financing was no longer realistically attainable, holding that the ultimate failure to secure financing did not preclude the defense. Employers seeking to invoke the “faltering company” exception should carefully document their capital-raising efforts as they occur.
- The decision provides useful guidance on drafting WARN notices. The District Court held that Yellow’s relatively concise notice adequately satisfied the WARN Act’s requirement to provide a “brief statement” explaining the shortened notice period. The notice identified the “faltering company” exception and explained that the Company had hoped to complete transactions and secure financing that would avoid the shutdown. In a footnote, however, the District Court distinguished cases addressing the “unforeseeable business circumstances” exception, suggesting that notices invoking that defense may require greater factual detail. As a best practice, employers should continue to provide as much factual detail as practicable when explaining the basis for any asserted WARN Act exception.
- The District Court expressed skepticism that an employer conducting layoffs before filing for bankruptcy can rely on the federal WARN Act’s “liquidating fiduciary” doctrine. Since the District Court concluded that Yellow qualified for the “faltering company” exception, it declined to decide whether Yellow also ceased to be an “employer” under the “liquidating fiduciary” doctrine. Nevertheless, the District Court questioned whether that doctrine should apply outside the bankruptcy process, signaling that it may be unavailable where layoffs precede a chapter 11 filing. Employers contemplating prepetition workforce reductions should therefore carefully consider the timing of layoffs relative to a potential filing.
- The decision highlights the need to evaluate state mini-WARN Acts independently from the federal WARN Act. The District Court found Yellow liable under the state law WARN Act, while escaping federal liability. The New Jersey WARN Act does not recognize the statutory “faltering company” or “unforeseeable business circumstances” exceptions. Further, the District Court rejected Yellow’s argument that it ceased being an “employer” under the New Jersey WARN Act when it implemented the layoffs, explaining that the state statute’s definition of “employer” differs from the federal WARN Act and does not support the “liquidating fiduciary” doctrine. Employers winding down operations should thus be mindful that ceasing operations alone may not terminate their obligations under applicable state mini-WARN Acts.
Concluding Thoughts
Overall, the decision provides a useful framework for analyzing WARN Act issues arising in financially distressed businesses. Employers contemplating a restructuring, plant closing, or mass layoff should consult with counsel to evaluate available WARN Act defenses, ensure that WARN notices are drafted in detail to explain the basis for any asserted exceptions, and assess any differing obligations under applicable state WARN laws.