New Jersey Healthcare Transactions Now Face Onerous Employment Requirements

Under S-315, certain healthcare employers must provide advance notice of a sale of the company to employees, and buyers have reduced flexibility in hiring and downsizing their workforces following an acquisition.

WHEN THE LAW APPLIES

S-315 imposes new requirements on New Jersey healthcare employers that undergo a “change in control.” Change in control is defined broadly within the law, and refers to:

“[A]ny sale, assignment, transfer, contribution or other disposition of all or substantially all of the assets used in a health care entity’s operations; or any sale, assignment, transfer, contribution or other disposition of a controlling interest in the health care entity, including by consolidation, merger, or reorganization, of the health care entity or any person who controls the health care entity; or any event or sequence of events, including a purchase, sale, or termination of a management contract or lease, that causes the identity of the health care entity employer to change, but shall not include a change in control in which both the former health care entity employer and the successor health care employer are government entities.”

Given the way the definition is drafted, it is unclear whether the law is intended to apply to equity transactions where the employer entity pre- and post-close is the same legal entity. It is anticipated by the authors of this article that forthcoming guidance from the New Jersey legislature may provide clarification as to this and other ambiguities regarding undefined terms.

S-315 applies to hospitals, healthcare and treatment centers, rehabilitation centers, nursing homes, outpatient clinics, dispensaries, residential healthcare facilities, and any other healthcare entities licensed under N.J.S.A. 26:2H-1 et seq. Moreover, the law applies to staffing registries and home healthcare services agencies as defined under N.J.S.A. 45:11-23 et seq.

WHOM THE LAW PROTECTS

The law provides rights to “eligible employees,” or those who were employed during the 90-day period before the effective date of a change in control, as well as any former employee with recall rights under a collective bargaining agreement. Neither managerial employees nor employees who are discharged for “cause” within the 90-day period are eligible employees under the law. (Notably, the law does not define what constitutes “cause.”)

SELLER AND BUYER OBLIGATIONS UNDER THE LAW

The law provides that all parties to the purchase agreement and all healthcare entities subject to the change in control (including the employer pre-close, referred to under the law as the “former health care entity employer,” and the employer post-close, referred to under the law as the “successor health care entity employer”) must comply with all provisions required by the law to be included in the contract.

Pursuant to the law, not less than 30 days before the change in control, the former healthcare entity employer must do the following:

• Provide the successor healthcare entity employer, and any collective bargaining representative the employees may have, with a list of information that includes the name, address, date of hire, phone number, wage rate and employment classification of each eligible employee.
• Inform all eligible employees of their rights under the law.
• Post a notice of employee rights under this law in a conspicuous location accessible to all employees.

In addition to the former healthcare entity employer obligations above, pursuant to the law, no change in control of a healthcare entity employer can take place without a contract between the successor and former healthcare entity employers that provide the following:

• The successor healthcare entity employer must offer continued employment to each eligible employee for a transition period of at least four months following the change in control, without any reduction in wages, paid time off, or the total value of benefits, including healthcare, retirement and education benefits. The offers of employment must be in writing and the offers must remain open for at least 10 business days. (If the total number of available positions with the successor healthcare entity employer is less than the total number of eligible employees, the successor healthcare entity employer is required to select eligible employees to retain based on seniority and experience.)
• Eligible employees who choose to accept continued employment cannot be terminated without “cause” during the four-month transition period, except that the successor healthcare entity employer is permitted to lay off eligible employees, provided that (a) the employer reduces the total number of employees, (b) the choice of employees to be retained is based on seniority and experience, and (c) the laid off employees are offered any positions that they had previously held that are subsequently restored during the four-month (or greater) post-close transition period.
• At the conclusion of the transition period, the successor healthcare entity employer must prepare a written performance evaluation for each retained eligible employee, who must then be offered continued employment if the employee’s performance during the transition period was “satisfactory.” (The term “satisfactory” is not defined within the statute.)
• Finally, the successor healthcare entity employer is required to retain and provide to an employee or representative of the employee upon request, a written record of each offer of employment and evaluation made pursuant to S-315 for at least three years from the date of the offer or evaluation, with each record including the name, address, date of hire, phone number, wage rate and employment classification of the employee.

EXCEPTION FOR COLLECTIVE BARGAINING AGREEMENT COMPLIANCE

Notably, the law presents a carve-out to compliance with its provisions where compliance would conflict with an employer’s obligation to comply with obligations under a collective bargaining agreement entered into by an exclusive representative of employees of a healthcare entity subject to a change in control. The law also expressly provides that it does not limit the recognition of a collective bargaining representative of the employees of a successor healthcare entity employer or collective bargaining between the successor healthcare entity employer and a collective bargaining representative.

NONCOMPLIANCE PENALTIES AND REMEDIES

The law creates a private right of action for employees affected by their employer’s violations. Potential remedies available to employees include recovery of lost or unpaid wages, recovery of paid time off and benefits, recovery of attorneys’ fees, and liquidated damages of up to 200% of the unpaid wages. Furthermore, employees can seek injunctive relief for violations, including reinstatement into their previous positions. The law requires all parties to the transaction and the former and successor employers to comply with the law, even if the contract memorializing the transaction failed to include the required provisions.

NEW JERSEY TRANSACTIONS: 2023 AND BEYOND

Private equity and strategic investors transacting in the healthcare space should be mindful of these new requirements and restrictions applicable to many New Jersey-based healthcare entities. Investors should also be aware that New Jersey has also recently passed a bill (pending the governor’s signature) that will implement further restrictions with respect to mass layoffs covered by the state’s Millville Dallas Airmotive Plant Job Loss Notification Act (NJ WARN Act); more information on the updated New Jersey WARN provisions can be found in our client alert here.

If employers have questions regarding the changes in New Jersey or elsewhere, please contact the McDermott employment team.

Nicholas Meyer, a law clerk in the New York office, also contributed to this article.