Red Lobster Could Face Lawsuits Over Closures: Attorney

The sudden closure of dozens of Red Lobster restaurants across the U.S., which was not officially announced by the company, might lead the struggling seafood chain to face potential lawsuits from disgruntled former employees, an attorney told Newsweek.

"By shutting its doors without any advance warning to its employees that the company was shutting down, Red Lobster could face litigation related to purported failures to properly notify employees of closures or layoffs under the Worker Adjustment and Retraining Notification (WARN) Act," Sarah Foss, Global Head of Legal at Debtwire, a service of ION Analytics, told Newsweek.

"The federal WARN Act requires companies with 100 or more full-time employees to provide at least 60 days of notice for planned mass layoffs or closings," she added. Foss has over 15 years of experience as an attorney specializing in business reorganizations, including Chapter 11 bankruptcy cases.

On Monday, restaurant liquidator TAGeX Brands wrote that it was auctioning the kitchen equipment, furniture and other contents of over 50 Red Lobster restaurants across the country. The closures, though not officially confirmed by Red Lobster, were apparent on their website, where dozens of locations were listed as temporarily shut down.

Newsweek contacted Red Lobster for comment by email on Tuesday but received no response. In a statement to Newsweek, Thai Group, who owns a 25 percent stake in Red Lobster, wrote: "Thai Union Group is in the process of exiting its minority investment in Red Lobster (Thai Union never owned Red Lobster). Please understand that we do not wish to comment further."

According to reports, Red Lobster failed to notify employees that the restaurants they worked in were closing. An alleged employee, @haileyreneeee, wrote on X on Monday: "I lost my job today without warning and working Mother's Day yesterday." In a follow-up post, she added: "I'm one of the lucky ones who don't have kids or a house to pay off. Just so terrible leaving all those employees with nothing, no notice, anything."

Foss said former employees might have grounds to sue the company, but Red Lobster might avoid them by filing for Chapter 11 bankruptcy.

"Despite the potential for litigation, Chapter 11 can be a useful tool for a restaurant or retail chain facing financial distress as it allows a debtor to renegotiate and reject burdensome leases and contracts, which are often a major financial strain on a distressed company in these sectors," she said.

"Although Red Lobster's path through bankruptcy is unclear, the company, which is a subsidiary of Thai Union Group, is likely considering both a sale as well as its standalone restructuring options."

In March, several news media reported that Red Lobster was considering filing for Chapter 11 bankruptcy in an attempt to alleviate its financial troubles. The popular seafood chain has struggled to recover from the difficult years of the pandemic, facing a decline in both sales and profits, significant debt and unfavorable lease terms.

Even the repeated turnover of executives and attempts to change the direction of the company didn't turn Red Lobster's situation around.

The introduction of its "Ultimate Endless Shrimp" deal as a permanent feature of its regular menu last year, an offer that was meant to attract more customers to the chain's restaurants, spectacularly backfired against the company. While the deal, which offers customers all-you-can-eat shrimp for only $20, increased traffic to Red Lobster by 4 percent compared to the year before, according to Restaurant Business Magazine, but contributed to the company's $11 million losses in just one quarter.

The future of the seafood chain is now uncertain, and it's possible that Red Lobster might still be considering bankruptcy.

"The bankruptcy filing would be the first from a major restaurant chain this year, which has seen a number of retailers and an even larger number of healthcare and telecommunications companies commence Chapter 11 proceedings," Foss said.