“It Wasn’t Me!” – Sixth Circuit Rules that Management Consultant Wasn’t Joint Employer under the WARN ActCan your consultant-consultee relationship with an employer who allegedly violates the Worker Adjustment and Retraining Notification (WARN) Act subject you to liability as well? Not according to the U.S. Court of Appeals for the Sixth Circuit. In McKinney v. Carlton Manor Nursing and Rehabilitation Center, Inc., former nursing home employees sued Carlton Manor and its management consultant for alleged violations of the WARN Act.

The Facts

In July 2013, the Ohio Department of Health cited Carlton Manor for failing to meet 27 federal health and safety regulations and gave it until January 2014 to fix the problems. Carlton Manor hired Sovran, a management consultant, to help and by the deadline had resolved 26 of the 27 deficiencies. The health department rejected its plan to comply with the final regulation and began the process of revoking Carlton Manor’s operating license. The nursing home closed soon after.

Before closing, Carlton Manor gave little notice to its employees (and certainly not the 60 days the WARN Act requires). Consequently, Debi McKinney filed a putative class action against Carlton Manor and Sovran under the WARN Act. Although the employees received a default judgment against Carlton Manor, they received nothing because the nursing home had no assets. As one would expect, they turned to Sovran, the only solvent defendant in the case. However, the employees still hit a brick wall, as the district court ruled that Sovran was not liable under the act because it was not the employees’ employer and did not decide to close the nursing home. The district court granted summary judgment for Sovran, and the employees appealed.

The Sixth Circuit’s Opinion

In reaching its ruling, the Sixth Circuit first focused on the words of the WARN Act, explicitly articulating that “employers” were liable for violations. Specifically, “[o]nly ‘employers’ that ‘order[ed]’ a plant closing face[d] regulation by the Act or liability under it.” The Sixth Circuit emphasized that there was no dispute that Carlton Manor, not Sovran, employed the nursing home workers. Likewise, Carlton Manor, not Sovran, made the final decision to close the nursing home. Based on these facts, Sovran was not an employer under the terms of the act.

Despite McKinney’s attempt to argue that Sovran and Carlton Manor were either a “single employer” or “separate employers,” the Sixth Circuit easily rejected these theories. On the single employer theory, the Sixth Circuit held that none of the factors that make two entities a single employer were present. There was no common ownership, they did not share any directors, officers, or personnel policies, and they kept separate payrolls. They also operated two distinct businesses that were not dependent on each other. Although the court acknowledged that one might argue that Sovran exercised some control over Carlton Manor employees (it allegedly had the authority to fire nursing home employees), it was unclear if this power was the type of control that would indicate that Sovran and Carlton Manor were a single employer. Thus, while no one factor was dispositive in determining whether the entities were a single employer, McKinney could not meet any of the listed factors, and her first argument failed.

Regarding the defendants being separate employers, the Sixth Circuit reiterated that the factors in the WARN Act’s regulations, whether examined singly or taken together, did not show that Sovran was McKinney’s separate employer. There was no evidence that Sovran hired McKinney, fired McKinney, or otherwise treated her as one of its employees. Furthermore, there was no evidence that Sovran ordered the closing of the nursing home. The court explained that Sovran and Carlton Manor had a consultant-consultee relationship in which Sovran offered management advice to Carlton Manor, but never became the owner of the nursing home in the process. As such, Sovran was not liable to McKinney, or any other nursing home employees, under the WARN Act.

Practice Points

So what should a consultant do to protect itself from being deemed either a single employer with its consultee or a separate employer of its consultee’s employees? Follow Sovran’s example, and keep the factors that constitute a joint employment relationship in mind so that you actively avoid them.

  • Keep your business distinct and independent of your consultee.
  • Do NOT share ownership with your consultee.
  • Do NOT share common directors or officers with your consultee.
  • Do NOT share personnel policies, employee handbooks, and/or policy and procedure manuals.
  • Most importantly, do NOT exercise control over the terms and conditions of employment of your consultee’s employees or over the consultee’s business operations.

498, 499, 500! Not So Fast, Says the Sixth Circuit on WARN Act CaseThis week, the Sixth Circuit weighed in on what it identified as an “unusual” case involving the seldom-seen Worker Adjustment and Retraining Notification (WARN) Act. The WARN Act requires employers to provide at least 60 days written notice to affected employees before a mass layoff. The statute defines a mass layoff to include an “employment loss” at a single site of employment of at least 500 employees during any 30-day period. The WARN Act 500-employee threshold can be met by aggregating two or more layoffs during a 90-day period, unless the employer shows that they are separate layoff actions and not an attempt to simply circumvent the statute. An “employment loss” under WARN can be 1) a termination; 2) a layoff exceeding 6 months; or 3) a reduction in hours of work of more than 50 percent during each month of any 6 month period. Although the statute does not define “termination,” the Department of Labor has interpreted it to mean “the permanent cessation of the employment relationship.”

In Morton v. The Vanderbilt University, the timeline was very important in aggregating two different layoffs. On July 1, 2013, the University terminated 194 employees (the July Group). By themselves, the July Group did not meet the 500-employee threshold and did not qualify as a “mass layoff” under the WARN Act. However, on September 17, 2013, 279 additional Vanderbilt employees (the September Group) were provided individualized letters notifying them that their positions would be terminated. The letters stated that these 279 employees were immediately placed on 60 days of “paid leave,” but would not be required to report for work during that period. The 279 were told to collect their belongings and leave the premises. The July Group filed suit claiming that they were not provided proper written notice under WARN. They claimed that the July and September layoffs fit under the 90-day aggregation provision of the statute to add up to over 500—which would be a mass layoff.

For those of you who have done the math—I recognize that 194 and 279 do not add up to 500. However, the parties stipulated that if both groups were aggregated, the total number of employees terminated within 90 days of the July Group would reach or exceed 500.

The sole issue was whether the September Group suffered an employment loss in September, when they got the notice, or in November, when the 60 days of paid leave expired. If the employment loss was in November, it would be outside the aggregation period and the July employees would be out of luck. The lower court sided with the July Group and said the job loss was in September so WARN notice was required. Vanderbilt appealed.

The Sixth Circuit focused on the Department of Labor’s definition of “termination.” Since the September Group continued to receive wages and benefits until November, there was not a “permanent cessation of the employment relationship” until that later date. The fact that they were not actually performing work during the 60-day period was not the controlling factor—their receipt of the wages and benefits was. The Sixth Circuit ruled that the September Group’s termination fell outside of the aggregation period and therefore did not trigger any cause of action for the July Group.

While it is true that this is a situation that is likely rare for most employers, it is a good reminder of a possibly forgotten obligation that must be examined in layoffs. The WARN Act is fairly cut and dried—if you have over 100 employees and meet the statutory triggers within the covered periods, you must provide written notice and other services as specifically required in the statute. As such, planning may be necessary if it looks like the economics of a business are going to demand large personnel changes.