dispute

Last week’s abrupt closures of Koffee Kup Bakery plants in Brattleboro and Burlington, Vt., have prompted a class-action lawsuit alleging the company did not give employees the notice required by federal law.

Matthew Chaney, a former worker at Vermont Bread Co. in Brattleboro — a subsidiary of Koffee Kup Bakery, which is based in Colchester, Vt. — filed the lawsuit in U.S. District Court in Vermont on Thursday, on behalf of himself and other terminated workers.

The closures resulted in about 250 layoffs in Vermont.

Koffee Kup Bakery Inc. was acquired on April 1 by American Industrial Acquisition Corp., a New York-based private equity firm, according to an April 7 news release from G2 Capital Advisors, which advised Koffee Kup during the sale.

On April 26, Jeff Sands of Dorset Partners LLC, an adviser to AIAC, notified the state of Vermont that Koffee Kup was shuttering its facilities in Burlington, which employed 156 workers, and Brattleboro, which employed 91.

According to the lawsuit, Koffee Kup also laid off employees at a third facility in North Grosvenor Dale, Conn., bringing the total to around 500. The Sentinel was not immediately able to confirm the Connecticut layoffs with that state’s Department of Labor.

The notices provided to the Vermont Department of Labor attributed the closures to Koffee Kup’s financial situation. Sands said in a news release last Tuesday that Koffee Kup had lost money in each of the past four years.

The lawsuit — filed against AIAC, Koffee Kup and three associated companies, including Vermont Bread Co. — claims the layoffs violated the federal WARN Act, which generally requires employers to give workers, states and municipalities 60 days’ notice before plant closures or mass layoffs. The lawsuit seeks to recover 60 days of wages and benefits for the laid-off employees.

The WARN Act includes certain exceptions, including for natural disasters and unforeseeable business circumstances. AIAC has cited another exception to the law: Companies that are actively seeking financing to avoid closures or layoffs do not need to give 60 days’ notice if it “would have precluded the employer from obtaining the needed capital or business.”

In his notices to the state last week, Sands wrote that Koffee Kup had defaulted on loans and its lenders had allowed it to keep operating under a forbearance agreement.

The company, he wrote, “had undertaken very substantial efforts to obtain additional financing or investors” without success, and lenders declined to extend the forbearance agreement or loan Koffee Kup more money.

Sands wrote that on April 22, Koffee Kup “received default notices from the lenders to the company demanding immediate payment of outstanding loans, asserting its rights to take possession of our assets and confirming that it would no longer extend credit to cover operating costs of the company including payroll.”

Sands wrote that the company could not have given notice about the closures earlier because it was exploring ways to keep operating.

“We were unable to provide you with this notice any earlier as we were uncertain of the success of the efforts that we have been making to continue operating,” he wrote. “Earlier notice of this unfortunate outcome would have been premature and would have jeopardized those very efforts.”

In a statement last Wednesday, Vermont Labor Commissioner Michael Harrington said his department’s legal team “is currently reviewing the notices that were provided and have already been in contact with the [Koffee Kup Bakery] to determine whether the company complied with” the state’s version of the WARN Act. A spokesman for the Department of Labor said that review is still underway.

Stuart J. Miller of New York-based Lankenau & Miller LLP, one of the attorneys representing the Koffee Kup employees, said justifications are common in WARN Act cases.

“Almost every case, the employer comes up with a story at the end — ‘It was unforeseeable,’ ‘We were seeking financing’ — and then they give notice the last day,” he said.

To claim the WARN Act exemption related to seeking financing, he said, a company must prove several things, including that it had a “reasonable, good-faith” belief it could get that financing. Miller said he’s skeptical of that here, based on Koffee Kup’s financial situation.

In such cases, he said, “very often it turns out there was no good-faith belief they were going to get that financing — they’re in default all over the place.”

Miller said his team has heard from additional employees and plans to file an amended complaint with more plaintiffs.

Sands declined to comment Monday, referring a reporter to the WARN Act notices he filed on Koffee Kup’s behalf.

“Four years of losses are the culprit,” he told the Brattleboro Reformer last Tuesday, before the lawsuit was filed. “Everyone wants a villain storyline, but there’s just not one there. This one just wasn’t salvageable.”

He said he couldn’t discuss how much Koffee Kup had lost or why it was losing money, according to the paper.

Efforts to reach Chaney, the former employee, Monday were unsuccessful.

Founded in 1940, Koffee Kup acquired Brattleboro’s Vermont Bread Co. in 2013, according to its website. It distributed its baked goods to more than 4,500 points in the Northeast and employed 500 people at its three bakery facilities in Vermont and Connecticut, according to the April 7 news release from G2 Capital Advisors.

Founded in 1996, AIAC has holdings in 24 countries that consist of around 80 manufacturing and distribution sites with more than 8,500 employees, according to its website. Those holdings range from defense and aerospace manufacturers to pharmaceutical companies.

Paul Cuno-Booth can be reached at 352-1234, extension 1409, or pbooth@keenesentinel.com. Follow him on Twitter @PCunoBoothKS.