On June 29, 2026, the U.S. District Court for the District of Delaware affirmed the disallowance of federal WARN Act claims asserted against Yellow Corporation by the International Brotherhood of Teamsters and other unions. The court held that Yellow qualified for the “faltering company” exception under 29 U.S.C. § 2102(b)(1) and that its WARN notice was sufficient to invoke that exception. The decision is significant for distressed companies navigating the intersection of mass layoffs and bankruptcy filings, as it clarifies the standard for WARN Act notice sufficiency and signals potential limits on the “liquidating fiduciary” defense for pre-petition layoffs.
Background
Yellow was the largest unionized less-than-truckload carrier in North America. On July 30, 2023, Yellow ordered the layoff of approximately 22,000 union employees without providing 60 days’ advance notice under the WARN Act. One week later, Yellow filed for Chapter 11 bankruptcy. The Teamsters and other unions asserted federal and state WARN Act claims on behalf of the displaced workers.
At summary judgment, the Bankruptcy Court (Judge Goldblatt) found that while Yellow substantively qualified for both the “faltering company” and “unforeseeable business circumstances” exceptions to the WARN Act, Yellow could not invoke them because its notice was insufficiently detailed. After trial, the Bankruptcy Court held that Yellow was not an “employer” under the federal WARN Act because it was operating as a “liquidating fiduciary” at the time of the pre-petition layoffs and therefore not required to provide notice.
Notwithstanding, the Bankruptcy Court held that Yellow could not avail itself of the liquidating fiduciary exception with respect to the unions’ New Jersey State WARN Act claims because the state act defines “employer” as a “business entity,” i.e., a legally recognized organization, rather than a “business enterprise” under the federal WARN Act, which requires some ongoing commercial activity.
The Delaware District Court’s Ruling
District Court Judge Jennifer L. Hall affirmed the disallowance of federal WARN Act claims on alternative grounds. The court agreed that Yellow was a “faltering company” under § 2102(b)(1) because it was actively seeking capital at the time 60-day notice would have been required. The court reversed the Bankruptcy Court’s finding that Yellow’s notice was insufficient, holding that Yellow’s statement—that it “had hoped to complete one or more transactions and secure funds and business to prevent the closing of these locations but was unable to do so”—adequately conveyed the basis for shortened notice.
In light of its ruling, the court declined to reach the question of whether Yellow’s notice was sufficient to invoke the unforeseeable business circumstances exception, although it recognized that an employee “would need to be told something about the underlying facts that constitute the unforeseeable circumstances in order to understand the situation and the employer’s reasons for shortening the notice period.”
For the same reason, the court declined to rule on the applicability of the “liquidating fiduciary” exception under federal law. The court did, however, affirm the Bankruptcy Court’s decision that Yellow was an “employer” under the New Jersey State WARN Act and, therefore, could not avail itself of the liquidating fiduciary exception under state law.
Key Takeaways from the Decision
- Faltering Company Exception — Practical Standard: The court confirmed that active engagement of an investment banker to refinance debt and attract capital satisfies the “actively seeking capital or business” requirement, even where those efforts ultimately fail. This provides meaningful guidance for distressed companies about the type of activity that qualifies.
- Notice Sufficiency — Substance Over Length: The court held that a brief WARN notice identifying the applicable exception and explaining the company’s failed efforts to secure financing is sufficient, even without extensive factual detail. The key is whether an employee can understand the employer’s situation and reasons for shortened notice.
- Liquidating Fiduciary Defense — Future Uncertainty: Critically, the court stated that it is “skeptical of the proposition that a company can rely on the liquidating fiduciary exception when it lays off its employees before entering bankruptcy proceedings.” While the court did not need to reach the issue given its faltering company holding, the dicta signals that the liquidating fiduciary defense may face significant headwinds for companies that conduct layoffs prior to a bankruptcy filing.
A copy of the court’s decision is available here.
The Teamsters have indicated they intend to appeal this decision to the Third Circuit Court of Appeals.
