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Employees Transferred As Part of a Seamless Sale or Acquisition Do Not Trigger Employer’s Notice Obligations Under the California Warn Act
By Sara S. Bowen
[January 2006]
A recent California case brings good news to employers considering a sale, because it explicitly holds that an employer selling all or part of its business need not provide the required 60-day statutory notice under the California WARN Act to employees who are transferred to the new employer with no change in job duties, compensation, or benefits.
The California Worker Adjustment and Retraining Notification Act1 (“California WARN Act” or “Cal-WARN”) requires an employer conducting a “mass layoff” in California to provide 60 days’ notice to the employees affected by the layoff. 2 Cal-WARN provides that a “mass layoff” is “a layoff during any 30-day period of 50 or more employees at a covered establishment.”3 In a recent case, MacIsaac v. Waste Management Collection And Recycling, Inc., the California Court of Appeal addressed for the first time whether an employer selling a part of its business is required to provide notice to employees who do not lose their jobs in connection with the sale, but instead are transferred to a new employer to perform the same work with the same pay and benefits. In MacIsaac, the court concluded that there was no “mass layoff” triggering the notice requirements of the California WARN Act.
Three years ago the employer, Waste Management Collection and Recycling, Inc., doing business as Empire Waste Management, Inc. (“Empire Waste”), received an offer from another refuse-collection company, North Bay Disposal Corporation (“North Bay”), to purchase an existing refuse contract that Empire Waste was servicing. Empire Waste agreed to sell the contract and, as part of the purchase agreement, North Bay agreed to hire 42 employees from Empire Waste. Under the agreement, the employees’ pay, benefits, and seniority would not change after the transfer, nor would their job duties.
On Jan. 8, 2003, Empire Waste notified the 42 employees that their jobs would be transferred to North Bay effective Feb. 1, 2003. On Friday, Jan. 31, 2003, Empire Waste removed the employees from its payroll, and North Bay added the employees to its payroll the following day. Weeks later, Empire Waste terminated an additional 20 employees in a reduction-in-force. This reduction was separate and distinct from the sale to North Bay, and none of the terminated employees was transferred to North Bay.
The issue in MacIsaac was whether Empire Waste’s actions in transferring 42 employees to a new employer and subsequently laying off an additional 20 constituted a “mass layoff” of more than 50 employees, thereby triggering Cal-WARN’s notice requirements. The word “layoff” is defined as “a separation from a position for lack of funds or lack of work.”4 The Federal WARN Act5 also requires notice in the event of a “mass layoff,” but the federal Act specifically exempts a “sale of part or all of an employer’s business” from the definition of a mass layoff, so it was not at issue in MacIsaac.
In MacIsaac, the transferred employees were not separated from their positions; rather, they transferred to North Bay and enjoyed the same pay, benefits, and level of seniority as they had at Empire Waste. Those employees did not lose “even a minute” of work. The transition, in other words, was “seamless.” Thus, the court concluded that the transferred employees had not been “laid off” within the meaning of Cal-WARN, and Empire Waste therefore was not under any obligation to provide a 60-day written notice.
The MacIsaac decision is a welcome decision for California employers because it allows greater freedom in negotiating sales and transfers without concerns of possible exposure to liability under Cal-WARN. Employers should be aware, however, that they still should provide the 60-day “mass layoff” notice whenever employees will be transferred to new jobs with inferior wages, benefits, or different job duties. Because Cal-WARN imposes penalties for failure to comply with the notice requirements, employers should remain mindful of their obligations under Cal-WARN and consult with employment-law counsel whenever they contemplate a sale or transfer of an existing business.
FOOTNOTES
1 The California WARN Act, Labor Code, §1400 et seq.
2 See Labor Code §1401, subd. (a).
3 Labor Code §1401, subd. (c).
4 Id.
5 29 U.S.C. 2101 et seq.
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This
Employment Law Advisory is a publication of the Employer Services
Department of Davis Wright Tremaine LLP. Our purpose in publishing
this Advisory is to inform our clients and friends of recent
developments in employment law. It is not intended, nor should
it be used, as a substitute for specific legal advice as legal
counsel may be given only in response to inquiries regarding
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Copyright
© 2006, Davis Wright Tremaine LLP.
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