Companies in distress sometimes retain management consultants to try to turn them around. Sometimes the plan works, sometimes not. When the turnaround effort fails and the company shuts down, can the management company be held liable as a joint employer?
This issue arose recently in a WARN Act case. The federal WARN Act requires an employer, before ordering a plant shutdown or mass layoff, to provide 60 days’ notice and pay to its employees.
Here’s what happened. A nursing home with multiple Medicare and Medicaid violations retained a consulting firm to try to solve its many problems. The consulting firm resolved most of the issues, but one sticky wicket remained, and the nursing home abruptly decided to shut down. The home did not provide the 60 days of notice required under the WARN Act, and its employees filed suit, seeking 60 days of pay.
Because the nursing home was bankrupt, however, the employee also sued the management company, arguing that it was a joint employer and therefore shared responsibility under the WARN Act to ensure that employees received 60 days’ notice and pay before the shutdown.
Can a management company be liable when its client orders a plant shutdown without providing sufficient WARN Act notice? In theory, yes. In this case, no.
The answer in this case turned on an analysis of five factors, which seek to determine whether two companies are either a single common employer or joint employers. Either conclusion would have made the management company jointly liable for the WARN Act violation.
The five factors that would suggest joint liability are:
- common ownership
- common directors and/or officers
- de facto exercise of control
- unity of personnel policies emanating from a common source
- the dependency of operation
Other factors may be considered too, and the test is a balancing test. There is no set number of factors that must be satisfied. These factors are listed in the WARN Act regulations. Notably, these are different factors than those used in joint employment tests under various other statutes.
The court ruled that the management company was not jointly liable because (a) it was sufficiently distinct from the nursing home, and (b) it did not exercise enough control over the nursing home’s employees and policies. The court also noted that the management company did not “order” the closing of the nursing home and, under the language of the WARN Act, that was another factor weighing against joint liability.
The lesson here for management companies or consultants is to remember the potential for joint employment liability.
Tip: Management companies wishing to limit their exposure to joint employment claims should try to avoid exercising direct control over its clients’ employees and policies. Instead, make recommendations and have the client/employer adopt and implement those recommendations.
Contract language can also be used to protect the management company. A contract can clarify that the management company can only make recommendations relating to the client’s policies, practices, and employees; but ultimately, all decisions are to be made by the client/employer.
© 2017 Todd Lebowitz, posted on WhoIsMyEmployee.com, Exploring Issues of Independent Contractor Misclassification and Joint Employment. All rights reserved.