iMedia Brands Can’t Use Pandemic to Skirt WARN Act Notice Obligations, Class Action Says

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A proposed class action argues that iMedia Brands cannot use the COVID-19 pandemic as an excuse as to why it failed to provide workers with 60 days’ notice prior to executing layoffs last March.

The plaintiff behind the 13-page lawsuit, a former on-air guest and host, says that iMedia stated in its March 24, 2020 termination letter that the company, under normal circumstances, would be required under the Worker Adjustment and Retraining Notification (WARN) Act to provide 60 days’ advance notice prior to executing a mass layoff. At the time, however, iMedia asserted it was exempt from doing so given the COVID-19 pandemic amounted to “significant and recent unforeseeable business circumstances,” according to the suit. 

The lawsuit argues, however, that the COVID-19 pandemic “has not in fact created circumstances that would allow iMedia to avoid its WARN Act obligations.” 

“More than one third of iMedia’s employees at each of the Company’s two most significant locations (headquarters in Minnesota and a distribution center in Kentucky) were similarly terminated, including more than 50 employees in Minnesota and more than 50 employees in Kentucky,” the complaint reads. “The other termination described in the preceding paragraph all occurred within 90s days or less of the termination of [the plaintiff], and none of the terminated employees was given any WARN Act Notice.” 

Prior to last year’s layoffs, iMedia, the company behind ShopHQ, employed more than 400 people in Minnesota and Kentucky, the case says. In its termination letter, the defendant supposedly stated, in part: 

“While we acknowledge that under normal circumstances, iMedia would be required under the Worker Adjustment and Retraining Notification (WARN) Act to provide 60 days’ advance notice to employees covered by the WARN Act of a workforce reduction of this nature, iMedia could not provide such notice that far in advance due to the significant and recent unforeseeable business circumstances described above [i.e. circumstances ‘including the substantial market and financial impact of the global spread of COVID-19’]. Specifically, the recent material market and financial impact of the global spread of the coronavirus and the resulting harm to iMedia’s financial wellbeing, as well as other significant developments over the course of the last several days, led to the decision to institute this workforce reduction.” 

The plaintiff charges that the financial difficulties experienced by iMedia predate the COVID-19 pandemic by “many months,” and that the reduction in workforce that the company is attempting to blame on the coronavirus “was clearly related instead to these longstanding problems.”

“There were several rounds of layoffs well before there was any COVID-19 concern,” the complaint says, stating the defendant experienced financial troubles predating its July 2019 name change from EVINE Live, Inc.

Cited in the complaint is an April 2020 Form 10-K Annual Report that stated iMedia had to do a “one-for-ten reverse stock split” in December 2019 in order to come into compliance with the minimum bid price to maintain its listing on the Nasdaq Capital Market. A February 2020 Form 8-K filed by the defendant, the suit says, reported on the defendant’s apparent commitment to “an organizational restructuring to improve the performance of ShopHQ’s on-air programming and to accelerate the Company’s return to profitability.”

According to the complaint, the defendant’s organizational restructuring included a “plan of termination under which the Company incurred approximately $2.1 million in charges, of which $1.9 million represent severance expenses.” Further still, the lawsuit says iMedia held from February 23 to March 4, 2020 the Invicta Voyager Cruise Event, an “extremely expensive endeavor in which the Company pays for round-trip airfare, luxury accommodations with food and transportation provided, and the price of the cruise for at least 8 hosts and around 30 to 40 crew members” in addition to paying for “operators, catering costs, rental cars for employees, and trailers used prior to boarding the cruise.” 

The suit contends that the first coronavirus case in the U.S. was reported on or around January 21, 2020 and “iMedia did not base its decision on the need to terminate some employees on that one case.” Moreover, the defendant’s business operations are “not the type that would be so seriously impacted by the pandemic as to require massive layoffs,” the case alleges. 

According to the complaint, iMedia’s April 2020 Form 10-K also had a section on the impact of COVID-19 on its business, in which it cited “significant uncertainty” about the magnitude of the pandemic on its operations. The form also made clear that the elimination of positions in Q1 2020 was “a result of and to prepare for the potential financial impacts of the COVID-19 pandemic,” which, the plaintiff asserts, do not constitute a valid reason for not notifying employees prior to the layoffs. 

The suit lastly notes that iMedia, despite the claimed “uncertainties,” has continued to hire since the onset of the pandemic and last March’s layoffs. 

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