Bankrupt SmileDirectClub Failed to Properly Notify Workers Before Layoffs, Lawsuit Alleges

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A proposed class action lawsuit alleges SmileDirectClub ran afoul of federal law when it failed to provide at least 60 days’ advance notice to employees who were laid off when the bankrupt teeth-aligner company shut down its global operations last month after failing to secure a buyer. 

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The nine-page SmileDirectClub lawsuit accuses the company, which, with hundreds of millions in debt, filed for Chapter 11 bankruptcy protection last September and ultimately shuttered in December, of violating the federal Worker Adjustment and Retraining Notification (WARN) Act when it terminated roughly 1,000 employees amid a “restructuring” of its business. 

The suit contends that defendants SmileDirectClub, which was once valued at around $8.9 billion, and affiliate Access Dental Lab are subject to WARN Act notification and back pay regulations given that they employed 100 or more people, exclusive of part-time employees, or employed 100 or more individuals who in aggregate worked at least 4,000 hours per week, exclusive of overtime, within the United States. 

According to the case, the defendants are on the hook for 60 days’ worth of wages, salaries, commissions, bonuses, accrued holiday and vacation pay, and pension and 401(k) contributions. 

Per the suit, SmileDirectClub and Access Dental Lab continued to actively operate their business after filing voluntary petitions for Chapter 11 bankruptcy protection on September 29, 2023. That same day, SmileDirectClub CEO David Katzman said in an email to employees that “today’s filing is not a liquidation proceeding, but rather a restructuring of our business to improve our financial health and continue providing our customers affordable and convenient premium oral care,” the case states. 

In the same email, Katzman assured employees that “we are operating our business and serving our customers as we always have” and that they should “see no change in [their] day-to-day responsibilities,” the filing adds. 

Then, on December 6, Katzman stated in an email to employees that “effective today, we will be saying goodbye to all of our Team Members,” the case relays. The layoffs included approximately 1,000 employees at SmileDirectClub’s Antioch and Nashville, Tennessee, facilities, per the suit. 

Though the defendants informed the court in a December 20 motion of their plan to sell the company amid its sizeable debt, these efforts were ultimately unsuccessful, the lawsuit shares. 

“Upon information and belief, one of the primary reasons that an agreement could not be reached is because the Defendants’ directors and officers, David Katzman, Steven Katzman, and Jordan Katzman, among others, were unwilling to step down from their positions,” the complaint claims. 

The lawsuit looks to cover all individuals who were employed by and laid off by SmileDirectClub and Access Dental Lab on December 8, 2023. 

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