Effective November 16, 2022, New Jersey will impose additional requirements when a ‘health care entity’ is sold or undergoes a change in control. The changes are the result of the enactment of S-315, on August 18, 2021.
What You Need to Know:
- New Jersey enacted a statute that will impose additional requirements when a ‘health care entity’ is sold or undergoes a change in control.
- The new statute affects every "health care entity": a licensed health care facility, a staffing registry, or a home care services agency that will undergo a ‘change in control’.
- The new statute provides additional protections to employees of the health care entity for four months following the change in control, and purchasers and sellers need to understand the requirements of the statute.
The new law is significant in that it creates new statutory burdens and responsibilities to a seller and a purchaser, including notice to the affected collective bargaining unit(s). This is a departure from current employment norms and typical arms-length M&A transactions, and the new law will create additional short-term protections for the employees of the affected ‘health care entity.’
Who does the new law affect?
Under the new law, a "health care entity" is a licensed health care facility, a staffing registry, or a home care services agency. The definition is broad, and will affect every licensed hospital, clinic, home health agency, assisted living residence, personal care home, or assisted living program that undergoes a change in control.
The law applies to sales, transfers, and other arrangements that change the control of a health care entity, including consolidations, mergers, and reorganizations.
What does the new law require from the seller?
At least 30 days before the change in control, the ‘former health care entity employer’ shall provide the ‘successor health care entity employer AND any collective bargaining representative for the employees a list of information. This includes: the name, address, date of hire, phone number, wage rate, and employment classification of each eligible employee employed at the affected health care entity. The former health care entity employer also has to inform all eligible employees of their rights provided by this new law and post, in a conspicuous location or locations accessible to all employees, a notice describing their rights provided by the new law and provide the successor health care entity employer AND any collective bargaining representative a list containing the name, address, date of hire, phone number, wage rate and employment classification for the “eligible employees.”
Who is an “eligible employee” under the law?
An “eligible employee” means any person employed at an affected health care entity during the 90-day period immediately preceding a change in control of a health care entity; or any person formerly employed at the health care entity who retains recall rights under an agreement with the health care entity employer.
The law specifically provides that “eligible employees” do not include managerial employees, or individuals who were discharged for cause during the 90-day lookback period.
What are the acquiring entity’s obligations in the first four months following the change in control?
The focal point of the new law is that any successor entity must offer employment to all eligible employees for a period of at least four months, with no reduction of wages, paid time off, or total value of benefits. This is subject to several exceptions and other requirements.
First, any offer needs to only be held out for a period of at least 10 days. If an employee does not accept employment during that time, they would fall outside of the new law’s protections.
Further, all employment positions at the successor entity must be offered to eligible employees until all of the positions are filled, or there are no positions left. This effectively means that eligible employees must have preference over new hires at least during the four-month transitional period.
Finally, the new law does provide a bit of reprieve in that it acknowledges that situations may arise where the total number of open positions may be less than the total number of eligible employees. Conceivably, this could be because an acquiring party seeks to reduce headcount to increase efficiency or decrease costs. In this situation, the acquiring entity may still only hire eligible employees during the transition period, but may select between eligible employees based upon “seniority and experience.” The new law is silent on what factors may be used to determine an employee’s “experience” for purposes of this selection, such as education level or training.
Any employees who are laid off as a result of job eliminations during the transition period must be offered any position they previously held, if the position is subsequently restored during the transition period.
What does the acquiring entity have to do after the first four months?
While the focus of the new law appears to be on retaining employees for the first four months, the requirements on the acquiring entity go further. Specifically, at the end of the four-month transition period the employer must perform a written performance evaluation for each retained eligible employee, and offer continued employment if their performance was satisfactory.
Employers additionally need to retain and provide to the employee or their representative, upon request, a written record of each offer of employment and every written evaluation prepared for not less than three years from the date of the offer or evaluation. The record must include the name, address, date of hire, phone number, wage rate, and employment classification of the employee.
This requirement in the new law deviates substantially from the traditional concept that employment is generally considered “at will,” meaning employees can be terminated at any time, with or without cause. The new law is silent on what an employer’s obligations are following this initial assessment period, and whether the employer must demonstrate poor performance to substantiate any termination in the future.
What are the ramifications for failing to follow the law?
The new law establishes a private right of action for employees to allow the employee to recover any wages or other benefits that they were denied. The new law specifically incorporates the remedies established under N.J. Stat. § 34:11-4.10, which allow for the recovery of liquidated damages and attorney’s fees (in addition to back wages). Therefore, any violation of the new law could have serious financial impacts and expose an acquiring entity to significant liability if the requirements are not followed.
This new law will affect transactions involving these health care entities and the deal documents related to those transactions. Prospective buyers and sellers will need to adhere to the new law or potentially face significant consequences.
