The New Jersey Superior Court, Appellate Division, recently ruled in Derosa v. Accredited Home Lenders, 2011 WL 2314304 (2011), that liability under the state’s Millville Dallas Airmotive Plant Job Loss Notification Act (“NJ WARN”) may extend to parents and affiliates of the nominal employer. 

NJ WARN, similar to its federal counterpart, the Worker Adjustment and Retraining Notification (WARN) Act, generally requires employers of 100 or more employees to provide at least sixty (60) days notice in advance of covered layoffs, plant closings and transfers or terminations of operations. Employers who fail to satisfy either Act’s notice requirements may be liable for civil penalties and back pay to employees.

In Derosa, the plaintiffs alleged they were discharged without notice or severance pay in violation of NJ WARN when their office was closed. The plaintiffs sued Accredited Home Lenders ("Accredited Home"), their nominal employer, as well as several other defendants including Lone Star Fund V ("LSFV"), a private equity fund that acquired Accredited Home's parent company, and Hudson Advisors, LLC ("Hudson"), a management services company that LSFV hired to assist Accredited Home. After Accredited Home and its parent company filed for bankruptcy and were dismissed from the lawsuit, the trial court ruled that LSFV and Hudson could not be liable for the alleged NJ WARN violations because NJ WARN’s definition of “employer” — an “individual or private business entity which employs the workforce at an establishment” - did not encompass parent corporations or affiliated businesses.

On appeal, the Superior Court reversed the trial court and ruled that NJ WARN should be interpreted consistent with the federal WARN Act to cover parents and affiliates acting as a “single employer” with the entity that caused the employment loss triggering the Act’s protections. Drawing from federal cases interpreting the WARN Act, the court held that a five-factor test applies to the question of whether parents and affiliates should be treated as a “single employer” for purposes of NJ WARN liability: (1) common ownership, (2) common directors and/or officers, (3) de facto exercise of control, (4) unity of personnel policies emanating from a common source, and (5) dependency of operations. The court noted that other tests may be advanced to supplement this test, such as the test for piercing the corporate veil. The court remanded the case for consideration of these factors, with special emphasis on the third factor.

The Superior Court’s decision is a good reminder that both NJ WARN and the federal WARN Act can be used to hold parent companies and other third parties who exert substantial control over the nominal employer liable for plant closures, mass layoffs and transfers or terminations of operations that do not comply with the applicable law.