A $12,000 warrant and a web of loans proved who really ran the doomed airline
Hundreds of airline workers found out by email their jobs were gone the next day. They never got their final paychecks.
The Ninth Circuit on September 29 reversed key rulings in the bankruptcy of Hawaii Island Air, broadening who counts as an "employer" under Hawaii's Dislocated Workers Act (DWA) and killing a safe harbor defense that had shielded the airline's former owners.
Island Air flew interisland routes in Hawaii for nearly 21 years. In 2013, an Oracle co-founder's trust acquired the airline through a holding company, Ohana Airline Holdings. It bled money - more than $46 million in losses over three years.
By 2016, the trust had sold a two-thirds stake to entities run by a local businessman. The bleeding did not stop. By mid-2017, the airline was lurching from one payroll crisis to the next.
On November 10, 2017, it shut down. Workers got a single day's warning via email and were never paid their final wages or benefits.
The bankruptcy trustee and two employee unions sued both ownership groups for violating the DWA's 60-day notice requirement and its obligation to pay wages at closing, alongside federal WARN Act claims. A jury awarded nearly $3 million against the majority ownership group for unpaid wages and found them liable for fiduciary breaches.
But the trial court had let the minority side walk, ruling they were not "employers" because Ohana held only a third of the stock.
The Ninth Circuit disagreed. The DWA's definition of "employer" - anyone who "directly or indirectly, owns, operates, or has a controlling interest" in a covered establishment - does not stop at majority owners. A minority stakeholder with actual control qualifies. The evidence here was hard to miss: a warrant that could restore majority ownership at any time for $12,000, financial leverage through affiliated lenders, and veto power over shutting the airline down.
The court also reversed on the safe harbor. The DWA defers the 60-day notice obligation while an employer is "actively seeking a buyer," but the court held the defense is available only when the search produces a divestiture. Island Air closed permanently. No divestiture, no defense.
On remand, if the minority ownership entities are found to be employers, all defendants face joint and several liability for notice violations and unpaid wages.
For HR professionals managing ownership transitions or wind-downs, the practical point is plain: who signs the checks matters less than who pulls the strings.
