Neal v. United Furniture Industries, Inc., 672 B.R. 297

United Furniture Industries, Inc. (UFI) and affiliates terminated about 2,700 employees without the required 60-day notice under the WARN Act on November 21, 2022.
Plaintiffs, representing former employees, brought a class action seeking damages under the WARN Act for failure to provide proper notice of a mass layoff or plant closure.
The court earlier granted partial summary judgment for Plaintiffs on liability but found material facts remained for trial; parties later settled all claims except the priority of WARN Act damages in bankruptcy.
The key issue is whether WARN Act damages to former employees should be treated as priority wage claims under 11 U.S.C. § 507(a)(4) in UFI's Chapter 11 case.
The Trustee opposed priority, arguing WARN damages are neither “wages” nor “severance,” while Plaintiffs and non-UFI Defendants argued these damages substitute for lost wages and qualify as priority claims.
The bankruptcy judge considered extensive briefing from all sides and multiple legal authorities before issuing the decision.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Are WARN Act damages entitled to priority as wages?	Yes. They are substitute wages or severance, compensatory in nature, and fit the ordinary meaning of wages under § 507(a)(4).	No. WARN damages are not earned wages or severance; employees did no work during the notice period.	Yes, they are entitled to priority treatment up to the statutory cap.
Is backpay under WARN "earned" under the Code?	Yes. Backpay is compensatory, meant to place employees in the position they would have been but for wrongful termination.	No. It is not earned because it is not based on work performed.	Yes, it is considered "earned" within the statute’s meaning.
Does policy support priority for WARN claims?	Yes. Treating as priority ensures enforcement of WARN, allows employee protection, and supports the Code’s remedial goals.	No. Prioritizing would overextend the Code’s scope and depart from plain statutory text.	Policy favors priority to not undermine WARN’s purpose.
Are relevant precedents controlling for priority?	Yes. Key case law and Supreme Court presuppose priority status for WARN claims in bankruptcy.	No controlling precedent directly requires priority here.	Prior precedents support, or do not undermine, priority classification.

Czyzewski v. Jevic Holding Corp., 580 U.S. 451 (2017) (Supreme Court held bankruptcy distributions cannot bypass statutory priority scheme, presupposing WARN claims’ priority status)
Carpenters Dist. Council of New Orleans v. Dillard Dept. Stores, Inc., 15 F.3d 1275 (5th Cir. 1994) (Fifth Circuit described WARN Act backpay as wages and benefits under ordinary understanding)
Saxion v. Titan-C-Manufacturing, Inc., 86 F.3d 553 (6th Cir. 1996) (WARN Act damages align with statutory and ordinary meanings of "back pay," supporting priority treatment)
In re Powermate Holding Corp., 394 B.R. 765 (Bankr. D. Del. 2008) (affirmed the importance of the Bankruptcy Code’s tiered priority structure)