Telltale has been hit with a WARN Act class action lawsuit [Update]

The WARN Act requires employees be notified well in advance of mass layoffs.

Update (9/25/2018): Telltale is now named as a defendant in a WARN Act class action lawsuit. The case, as first reported by Polygon, was brought by Vernie Roberts, represented by Farella Braun Martell LLP in the federal district of Northern California. The suit demands payment of unpaid wages and benefits (including accrued holiday pay, vacation pay, pension, retirement contribution, etc. for the 60-day notification period that was not afforded. 

As stated in our original story, a federal WARN Act suit is going to be harder for the plaintiffs than one filed at the state level under California’s version of the WARN Act. GameDaily is investigating whether a similar suit has been filed at the state level. 

GameDaily has reached out to Telltale for comment.

Original Story

Telltale Games’ mass layoffs on September 21 left 90 percent of the company without jobs and severance, and a rapidly approaching deadline to find new health insurance. The company may also have another complication on its hands, as some former employees have suggested that the Worker Adjustment and Retraining Notification (WARN) act requires employers notified staff 60 days in advance of mass layoffs and full location closure.

However, the federal version of the WARN Act includes an important provision. If a company is seeking funding or the business circumstance precipitating the layoffs was unforeseen, there may be an exemption from the notification requirement.

Variety has published additional information about what happened in the hours before Telltale Games laid off 250 employees. According to Variety sources, Telltale unexpectedly lost funding from Lionsgate, which committed a reported $40 million to the company in 2015.

This reportedly led Telltale to opt out of its relationship with Netflix for a Stranger Things game due to the loss of funding. Telltale was on the hunt for more funding, which would have limited or entirely prevented the layoffs.

Richard Hoeg, attorney at Hoeg Law, believes that Telltale finds itself in a challenging place. According to Hoeg, the "seeking funding" clause wouldn't apply if Telltale operated out of a single location.

"The capital raising exception applies only to 'plant closings' not 'mass layoffs,'" Hoeg tells GameDaily. "So Telltale would need to look for another exception under the federal law.  Fortunately (for them) they have one, in the more general 'unforeseeable business circumstances' exception. But the 'bucket' they find themselves in is important to note."

California has its own version of the WARN Act, which does not include the federal version's exception in the case of an unforeseeable business event. Telltale could find itself safe on the federal level, but liable on the state level. Hoeg also believes that Telltale would have needed to file with the state to take advantage of the exception.

"By keeping the Company open in some capacity, it would appear that Telltale has foreclosed itself from using the most obvious exception to the WARN Acts (capital raising)," Hoeg surmises. "That is unlikely to have significant negative effect on its ability to comply with the federal act (as the company’s behavior and the financing issues described in the Variety article certainly would seem to indicate business circumstances which were not foreseen), but the fact that California did not bring over the pertinent exemption would seem to put them in a precarious compliance position with the state, as there is no obviously applicable exception to the 60 day requirement that I can see from the outside."

If Telltale were to be found in violation of the California WARN Act, the penalties would be severe. Each employee would be entitled to back pay for the violation period (in this case, all 60 calendar days) plus the value of any benefits. Telltale would also be on the hook for any medical expenses incurred by employees that would otherwise have been covered by insurance.

While the development community and many players are focused on the 250 lost jobs, some fans believe they are entitled to the entire season due to prepayment of the season pass. While accounting rules dictate how those funds should be held on the books and recognized upon release of each episode (as mentioned in the original story below), the licensing agreement appears to give Telltale some flexibility.

“If you lawfully acquire a digital version comprised of all episodes of the Game, you may access and play episodes of it at such time as they are made available (and each episode will be released separately at a time to be determined by TTG),” the company says in its End User License Agreement. “TTG will publicly announce the release dates of episodes (which may be subject to change) but makes no representation or warranty as to when episodes of the Game will be released.”

Ultimately, fans might not legally be entitled to a refund, regardless of what happens. The EULA also restricts customers from engaging in class action lawsuits. "YOU SPECIFICALLY WAIVE ANY RIGHT TO BRING OR BE A PART OF A CLASS ACTION LAWSUIT FOR ANY CLAIMS RELATED TO YOUR USE, ACCESS OR PURCHASE OF THE SOFTWARE." (Emphasis Telltale's.)

These clauses aren't always as much of an obstacle as they seem, though. But that still might not help fans hoping for a refund on undelivered episodes.

"Class action waivers in terms of use and similar contracts (like EULAs) are constantly litigated and there is new precedent all the time," explains Brandon Huffman, founding partner of Odin Law & Media. "California also has a law allowing claims brought by private parties as though they are brought by the state, which could circumvent a waiver. But... while California and the Ninth Circuit are pretty hostile toward these waivers, the US Supreme Court under the Federal Arbitration Act is usually friendlier. That said, class actions are expensive, protracted litigation. At the end of the day, if Telltale has no money, what incentive is there for anyone to do all that work and spend that money for a chance that it might not be an effective waiver?"

With regard to the statement issued by Telltale yesterday, a cursory glance of social media sees fans celebrating. However, Telltale hasn't addressed a number of issues. With a majority of staff laid off, there is no guarantee of reassembling enough of the creative team that worked on the first two episodes. There is also the issue of severance, as the 250 laid off on September 21 were left with nothing, and only have health insurance coverage through the end of the month. Even if the staff are brought back, there's no guarantee it would be as employees (rather than contractors), at the same salary, or under working conditions that are ethical and healthy. If workers are brought back as contractors, that status precludes benefits and could have a larger tax implication.

Telltale may also be looking at another format to deliver the rest of the story. The statement specifically hedges, saying that episodes 3 and 4 might be delivered "in some form." While this could be the interactive adventures that fans expect, it could also be a pared back visual novel, comic book, or novelized wrap-up to the story.

Telltale has some significant questions to answer. Yesterday’s statement about The Walking Dead: The Final Season barely begins to answer them.

Michael Futter is the author of The GameDev Business Handbook, a guide for creating and sustaining an independent video game studio, and The GameDev Budgeting Handbook. He is also the former news editor of Game Informer and has written about business and legal issues and video game industry trends for eight years.