Seyfarth Synopsis: A bankruptcy court overseeing an employer’s Chapter 11 bankruptcy proceeding allowed the employer to pay certain unsecured creditors before paying Worker Adjustment And Retraining Notification Act (“WARN”) creditors – workers who had sued the company – monies owed pursuant to a judgment, even though the bulk of the WARN monies owed were for back wages that hold priority over other unsecured claims under the Bankruptcy Code.

Good news: structured dismissals have survived Supreme Court scrutiny. Bad news: dismissals may be harder to structure, given yesterday’s 6-2 decision overruling the Third Circuit in Jevic narrowing the context in which they can be approved. We now have guidance on whether or not structured dismissals must follow the Bankruptcy Code’s priority scheme. The short answer is that they must.

We previously wrote about the U.S. Supreme Court’s decision to hear a group of truck drivers’ challenge to the dismissal of a chapter 11 bankruptcy case that was designed to avoid paying the drivers’ claims. Today, the U.S. Supreme Court issued its decision in Czyzewski v.

The U.S. Supreme Court held today in a 6 to 2 decision that “structured dismissals” resolving Chapter 11 bankruptcy proceedings cannot deviate from the Bankruptcy Code’s priority scheme without the consent of the affected parties – which means that businesses must ensure workers receive their unpaid wages as part of any such resolution. Specifically, the Court rejected a structured dismissal that left a group of WARN Act plaintiffs without any compensation, telling employers, essentially, that they must squeeze blood from a stone to compensate their workers.

On June 28, 2016, the U.S. Supreme Court agreed to hear a challenge to a Third Circuit-affirmed settlement and dismissal of the chapter 11 cases of Jevic Transportation, Inc. (“Jevic”) and certain of its affiliates. SeeOfficial Comm. of Unsecured Creditors v. CIT Grp./Bus. Credit Inc. (In re Jevic Holding Corp.), 787 F.3d 173 (3d Cir. 2015), cert. grantedCzyzewski v. Jevic Holding Corp., No. 15-649, 2016 WL 3496769 (U.S. 2016).

A Mississippi Bankruptcy Court recently addressed several employer defenses to liability under the Worker Adjustment and Retraining Notification Act (“WARN Act”), which is noteworthy in the context of the current economy. In re FF Acquisition Corp. d/b/a Flexible Flyer, 423 B.R. 502 (Bankr. N.D. Miss. January 20, 2010).

In Czyzewski v. Sun Capital Partners, Inc.1, the United States District Court for the District of Delaware affirmed a Bankruptcy Court determination that a private equity firm was not liable for its subsidiary portfolio company’s failure to provide adequate notice of a plant closing under the federal Worker Adjustment and Retraining Notification Act (WARN Act).

The United States District Court in Delaware recently issued a welcome decision for private equity firms whose portfolio companies run afoul of the Worker Adjustment and Retraining Notification Act (the “WARN Act”).  In In re Jevic Holding Corp. (PDF), the Court affirmed a bankruptcy court decision holding that Sun Capital Partners (“Sun”) was not liable for the WARN Act violations of Jevic Transportation Inc.

On September 29, 2014, the United States District Court for the District of Delaware affirmed an earlier decision of the Delaware Bankruptcy Court in In re Jevic Holding Corp.1 holding that a private equity sponsor was not liable for its portfolio company’s alleged violations of the WARN Act. The District Court ruling is good news for private equity funds and other investors with portfolio companies in distress.

“The Pen Is Mightier Than The Sword…And Verbal Communications During Company-Wide Employee Meetings.”