Ex-employee files suit against SmileDirectClub

An employee of SmileDirectClub, one of approximately 1,000 workers who lost their jobs when the clear aligner company abruptly closed in December, has filed a proposed class action lawsuit claiming that the employer failed to provide the required advance notice of their layoffs.

On January 8, former employee Sheila Fatty filed the complaint in U.S. Bankruptcy Court for the Southern District of Texas, Houston Division, accusing SmileDirectClub of violating the U.S. Worker Adjustment and Retraining Notification (WARN) Act, which requires employers to give employees at least 60 days’ notice that they would be terminated, and other labor laws, according to the suit.

Fatty worked for SmileDirectClub affiliate Access Dental Lab until she was laid off on December 8, 2023, when the orthodontics company shuttered its global operations after failing to find a buyer to save the business, which had accumulated about $900 million in debt. In September 2023, SmileDirectClub filed for bankruptcy while its founders searched for a new buyer amid a restructuring.

SmileDirectClub, which at one time had been worth about $8.9 billion, must comply with the WARN Act and back pay rules because it employed at least 100 people -- exclusive of part-time workers or employees of at least 100 people who in aggregate worked at least 4,000 hours weekly, not including overtime -- within the U.S., according to the suit.

Therefore, SmileDirectClub purportedly owes wages, salaries, commissions, bonuses, and accrued holiday and vacation pay, as well as pension and 401(k) contributions, for 60 days, to these employees.

On September 29, 2023, the day that SmileDirectClub filed for bankruptcy, SmileDirectClub CEO David Katzman sent an email to employees stating that “today’s filing is not a liquidation proceeding, but rather a restructuring of our business to improve our financial health and continue providing our customers affordable and convenient premium oral care,” according to the suit.

Additionally, Katzman wrote in that email, “We are operating our business and serving our customers as we always have” and that employees should “see no change in day-to-day responsibilities.”

On December 5, 2023, Katzman sent an email to employees thanking them for all of their “hard work and devotion to” SmileDirectClub’s mission. Three days later, on December 8, 2023, SmileDirectClub terminated its employees because it was unable to save the company. That same day, Katzman sent an email to employees stating, “[T]his means that, effective today, we will be saying goodbye to all of our Team Members,” according to the lawsuit.

Terminating all employees simultaneously indicates an action taken by one company, therefore making no differentiation between parent company and subsidiaries, Fatty claims in the suit.

Furthermore, the lawsuit seeks to cover anyone employed and laid off on December 8 by SmileDirectClub and Access Dental Lab.