• Second Circuit Holds that Parent Company May Be Single Employer with Subsidiary for Purposes of WARN Act Liability
  • February 3, 2014 | Authors: Noah B. Steinsapir; Lori A. Zahalka
  • Law Firms: Mayer Brown LLP - Los Angeles Office ; Mayer Brown LLP - Chicago Office
  • Guippone v. BH S&B Holdings LLC

    Decision: BH S&B Holdings LLC (“Holdings”), a subsidiary of BHY S&B HoldCo LLC (“HoldCo”), purchased the assets of bankrupt retailer Steve & Barry’s in 2008. Later that year, as a result of the economic downturn, Holdings implemented a staff reduction. One of the laid-off workers brought a lawsuit against Holdings and HoldCo, alleging violations of the Worker Adjustment and Retraining Notification (“WARN”) Act, which generally requires employers to provide at least 60 days’ notice to employees in the event of a mass layoff.

    The district court granted summary judgment to HoldCo, agreeing that HoldCo was not a single employer with Holdings. The Second Circuit reversed that decision and adopted the Labor Department’s list of five, non-exclusive factors for determining when a single employer relationship exists: common ownership; common directors and/or officers; de facto exercise of control; unity of personnel policies emanating from a common source; and the dependence of operations.

    Analyzing these factors, the Second Circuit found a triable factual dispute regarding HoldCo’s de facto control over Holdings. The evidence showed that Holdings did not have its own board of directors, HoldCo’s board selected Holdings’ management and negotiated its financing, and the HoldCo board approved the resolution directing Holdings to institute layoffs. “Authorizing layoffs is not just a prerogative of ownership—it’s a function of being an employer, especially where, as here, HoldCo was the sole member and manager of Holdings, and the HoldCo board operated as Holdings’ board,” the court wrote. “There is sufficient evidence in the record to allow a jury to conclude that Holdings was not free to implement its own decisions, and that the layoffs were, in fact, directed by HoldCo.”

    Impact: This case serves as an important reminder to corporate parents to maintain corporate formalities and ensure that their subsidiaries have separate boards of directors and remain in control of personnel decisions in order to avoid joint liability under employment-related statutes, including the WARN Act. It also confirms that courts in the Second Circuit will evaluate the issue of whether a parent and subsidiary constitute a single employer by using the Labor Department’s factors.