California WARN's Faltering Business Exception Explained

Happy new year everyone!

The director of California's Department of Industrial Relations issued an opinion letter clarifying one of the provisions of California's baby WARN Act. In essence, the law requires employers to provide 60 days' notice of a shutdown, relocation, or mass layoff under certain circumstances. However, there are some situations in which notice is not required. One is when the employer is actively seeking capital or business when the notice was required to be given (at least 60 days before the triggering shutdown):

1402.5. (a) An employer is not required to comply with the notice requirement contained in subdivision (a) of Section 1401 if the department determines that all of the following conditions exist:
(1) As of the time that notice would have been required, the employer was actively seeking capital or business.
(2) The capital or business sought, if obtained, would have enabled the employer to avoid or postpone the relocation or termination.
(3) The employer reasonably and in good faith believed that giving the notice required by subdivision (a) of Section 1401 would have precluded the employer from obtaining the needed capital or business. . . . .
(d) This section does not apply to notice of a mass layoff as defined by subdivision (d) of Section 1400.

Note that the defense does not apply to layoff notices, only to shutdown notices. So, if a company is looking for a buyer, is that the same as seeking capital or business? No, said the Director. The opinion letter surveys the analogous federal case law and concludes that the employer should have given the notice even though it was trying to obtain a buyer before it went out of business.
The opinion letter is here.