Amid SEC Inquiry, Fraud Detection Startup NS8 Hit with WARN Act Class Action After Mass Employee Layoffs [UPDATE]

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A proposed class action alleges NS8 violated federal law when the Las Vegas small business fraud detection start-up laid off more than 200 full-time employees without providing mandatory advanced written notice.

The eight-page lawsuit, filed in Delaware federal court, claims NS8 ran afoul of the Worker Adjustment and Retraining Notification (WARN) Act given the company executed the mass termination without 60 days’ advance notice despite having more than 100 employees who worked at least 4,000 hours in aggregate per week.

According to the complaint, NS8 terminated the plaintiff and nearly the rest of its workforce without cause on September 11, 10 days after the company’s founder and CEO resigned amid a Securities and Exchange Commission (SEC) investigation. Forbes reports the mass layoff came only months after NS8 raised $123 million from venture capital investors, adding that the layoff happened just after employees learned of the SEC probe.

From Forbes: 

“In a letter sent to employees, the Las Vegas-based company said on Thursday that it was forced to downsize after ‘sudden and unforeseen circumstances.’ The letter was shared on Twitter by local publication Vital Vegas. The startup’s CEO, Adam Rogas, abruptly left the company last week, he confirmed to Forbes.”

The plaintiff, who worked for the defendant as a media manager, says employees were not told of the reason for the mass layoff “despite having attended two company meetings on the subject prior to the termination.” Although NS8 disseminated a purported WARN notice, it failed to explain why the layoff was happening aside from nodding to “sudden and unforeseeable business circumstances,” the lawsuit claims.

Forbes writer David Jeans relayed an account from a former NS8 software engineer who said employees were told during an all-hands Zoom meeting last week that the SEC was looking into the company for alleged fraud.

“We got on and were told that our finances were not what we thought they were, and there would be layoffs,” said the employee, who declined to be named.

According to the lawsuit, NS8 owes those laid off on September 11 their respective wages, salaries, commissions, bonuses, and accrued holiday and vacation pay for 60 days following their terminations, as well as any pensions and 401(k) contributions and COBRA healthcare benefits. 

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