Restaurant Now Faces A Painful Lawsuit After Layoffs in California

June 19, 2024

A restaurant now faces a painful lawsuit after layoffs in California took employees by surprise of the sudden and unexpected news.

Former employees of Rubio’s Restaurants Inc. have filed a complaint alleging that the fast-casual chain violated federal and California notification requirements during its recent wave of layoffs.

The complaint, led by plaintiff William Verran, seeks class-action status and claims that the company failed to provide adequate notice before terminating workers’ employment in June.

The Rubio’s Coastal Grill chain closed 48 underperforming restaurants in California and filed bankruptcy, blaming the high cost of doing business in the state.

But Rubio’s sales have been slipping for years, reports Restaurant Business.

It was the second bankruptcy for the chain—a reorganization was also filed in 2020 during the pandemic. Now with 86 restaurants, Rubio’s unit count has been in decline since 2017.

The Worker Adjustment and Retraining Notification, or WARN, act requirements in California are stricter than the federal standard.

The state requirement applies to employers of 75 or more workers.

If 50 or more employees within a 30-day period are laid off as a result of plant closures, employers must give 60-days notice.

In the complaint, Verran, a former worker at a restaurant in Roseville, California, contends he and others were terminated on or around June 5, without any notice.

On behalf of himself and the group, he is seeking 60 days back pay and benefits, as well as to be recognized as a higher priority claim within the bankruptcy proceeding.

The company could also potentially face penalties.

Rubio’s officials declined to comment, except to say that they disagree with the claims in the complaint.

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Also Read: Another Mall Clothing Retailer Now At High Risk of Bankruptcy

Other Economy News Today

An essential company now files a surprising bankruptcy after miscalculating demand for its inventory after the Covid-19 pandemic.

Supply Source Enterprises, a leading provider of branded and private label cleaning products and personal protective equipment, on May 21 filed for Chapter 11 protection to seek a sale of its assets.

Supply Source brands include The Safety Zone and Impact Products.

The Guilford, Connecticut debtor listed $50 million to $100 million in assets in its petition and $180 million in funded debt, which includes $80 million owed on a term loan credit facility, $60 million owed on an asset-based loan, and about $40 million in unsecured debt.

Before the Covid-19 pandemic, which generated huge demand for cleaning supplies and personal protective equipment in 2020, Supply Source had been consistently profitable with stable single-digit growth, according to a declaration from the debtor’s Chief Restructuring Officer Thomas Studebaker.

Once the pandemic hit in 2020, the debtor had substantial growth due to high demand for safety, hygiene and sanitation products

The debtor reported adjusted Ebitda of $93 million in 2020 which was nearly a 300% increase over the previous year.

However, the company’s financial performance deteriorated in subsequent years.

Based on the unprecedented demand in 2020, the company commissioned an industry study in early 2021 that concluded that the Covid-19 pandemic would fundamentally change the cleaning supplies and protective equipment industry and market for its products.

The study also estimated that the company’s Covid-related growth would likely be sustained through 2024.

In contemplation of continued customer demand at elevated prices, based on the study’s data, the debtor increased purchases of inventory even though the costs were higher due to supply chain constraints during the pandemic.

Despite the study’s assurance that growth would be sustained for years, the pandemic’s positive effect on the market faded by the end of 2021 and demand for PPE decreased to normal rates, reports TheStreet.

The reduction in demand led to large amounts of excess inventory that the company could not sell in the same quantities and prices.

The excess inventory forced the debtor to secure additional storage space, which increased storage costs.

These factors tightened the company’s liquidity and led to a decline in annual revenue in 2023 by 26% from 2022, resulting in a negative 2023 Ebitda of $13 million.

The debtor’s liquidity issues led to it being overdrawn on its asset-based loan facility by $30 million.

The ABL lender in February 2024 swept the debtor’s bank accounts, further impacting the company’s financial distress.

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Also Read: This Massive Mall Retailer Is Now Closing In California

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