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​Controlled Group - WARN Issues

2016.07.27  PE Fund Not a "Single Employer" with Portfolio Company - 3rd Cir.  Applying a 5-factor test for determining single employer status, the 3rd Circuit found in In re Jevic that, despite a parent-subsidiary relationship and common directors, the private equity fund (parent) was not a single employer with its bankrupt subsidiary (the employer with WARN obligations. The court explained that the plaintiff-employees had not raised material facts indicating that “the parent or lender was the decisionmaker responsible for the employment practice giving rise to the litigation."  Accordingly, the 3rd Circuit upheld summary judgment dismissing the WARN litigation versus the parent company.   

2013.Sept.26  One PE Fund Settles WARN Act Litigation; Another Loses Motion to Dismiss.  MatlinPatterson has reportedly agreed to pay $1.2 million to settle class action litigation in which former employees of a portfolio company alleged that they received inadequate notice of their plants' closings and were misled about their employment status. See Law360 article, and underlying case information under our 2013.Apr.23 entry below.  Separately, inYoung v. Fortis Plastics, an Indiana court has denied a different private equity fund's motion to dismiss, holding that --

• "This is a close case, but when each factor is balanced according to its relative weight, [the plaintiff] Mr. Young’s allegations regarding the status of Fortis and Monomoy as the 'single employer' of Mr. Young and the other class members are sufficient to survive Monomoy’s Motion to Dismiss. On the issue of highest importance—the decision to close the Fort Smith Facility—Mr. Young made a number of clear factual allegations regarding Monomoy’s involvement and exercise of control over Fortis. As was noted in Pearson, if sufficiently egregious, de facto exercise of control can be sufficient to warrant liability on its own. Pearson, 247 F.3d at 496."
  

2013.May.10  "Single Employer" Standards for Parent-Subsidiary Analysis (Del. Bankruptcy Ct).  In re Jevic Holding Corp. resulted in summary judgment dismissing WARN claims against a parent company where three of the five Department of Labor factors, “most notably de facto exercise of control, weigh strongly in favor of finding no ‘single employer’ liability.”

2013.Apr.29  Piggy-back WARN Claim vs. Parent PE Fund.  Law360 reports that a former employee of a bankrupt Atlanta company filed a class action seeking WARN Act damages from the parent company (private equity firm Navigation). The complaint was filed in Delaware District Court, with allegations drawn from those that survived dismissal in the Matlin Patterson case described below.

2013.Apr.23   PE Fund Held Vulnerable to WARN Claim (note contrast to lender case below!).  In Woolery v Matlin Patterson Global Advisors, a Delaware District Court refused to dismiss a class action in which former employees of a portfolio company seek WARN Act damages from the PE firms that were their employer’s majority owners. The court’s decision turned “most importantly” on allegations that the defendant PE firms “made the specific business decision giving rise to the litigation, i.e., to conduct the layoffs without 60 days’ notice.” The defendants allegedly took the following additional actions that the court referenced as being indicative of the parent company's de facto control, and potential WARN Act liability:

• When business declined, the PE firms "took over day-to-day operations of Premium" (the portfolio company);
• The PE firms made strategic decisions changing Premium's business strategy and products; and
  
• A partner of the lead PE firm "personally made significant management changes" including the demotion of Premium's President, the firing of a facility manager, and the close supervision of his replacement.
  

The court's decision then recited and applied the five-factor test that 20 CFR §639.3(a)(2) and Pearson v. Component Tech (247 F.3d 471, 477, 3rd Cir. 2001) establish for holding parent entities liable as a "single employer" for the employment decisions of a subsidiary.