Opinion ID: 772936
Heading Depth: 2
Heading Rank: 1

Heading: introduction

Text: 26 In the wake of numerous plant closings and mergers in the 1970s and 1980s, Congress passed the WARN Act. See Hotel Employees & Rest. Employees Int'l Union Local 54 v. Elsinore Shore Assocs., 173 F .3d 175, 182 (3d Cir. 1999). The Act was intended to protect workers by requiring that companies with advance knowledge of an imminent closing provide notice to employees, so as to allow workers and their families some transition time to adjust to the prospective loss of employment, to seek and obtain alternative jobs and, if necessary, to enter skill training or retraining that will allow these workers to successfully compete in the job market. 20 C.F.R.S 639.1(a). Thus, the Act states that: 27 An employer shall not order a plant closing or mass layoff until the end of a 60-day period after the employer serves written notice of such an order . . . to each representative of the affected employees as of the time of the notice or, if there is no such representative at that time, to each affected employee. . . . 28 29 U.S.C. S 2102(a)(1). 29 The Act defines an employer as any business enterprise that employs 100 or more employees. Id. S 2101(a). Employers violating the Act are liable for backpay and back benefits. See id. S 2104(a). Thus, the question presented by this litigation is whether, under these facts, GECC was the plaintiffs' employer. In order to make such a showing, the plaintiffs must establish GECC to be a single business enterprise with CompTech such that it is responsible for CompTech's WARN Act obligations. 30 The question when affiliated corporations will be considered a single employer for WARN Act purposes tends to arise in two contexts: (1) when plaintiffs seek to impose liability for violations on affiliates of insolvent corporations, see, e.g., Local 397, Int'l Union of Electronic, Elec. Salaried Mach. & Furniture Workers v. Midwest Fasteners, Inc., 779 F. Supp. 788 (D.N.J. 1992); and (2) when plaintiffs seek to establish that two or more affiliated corporations should be viewed as a single enterprise in order to meet the 100 employee WARN Act threshold, see, e.g., Watts v. Marco Holdings, L.P., No. 3:95CV88-B-A, 1997 WL 578783 (N.D. Miss. Aug. 8, 1997). The WARN Act itself does not address such situations, but the Department of Labor regulations issued under the Act provide that: 31 Under existing legal rules, independent contractors and subsidiaries which are wholly or partially owned by a parent company are treated as separate employers or as a part of the parent or contracting company depending upon the degree of their independence from the parent. Some of the factors to be considered in making this determination are (i) common ownership, (ii) common directors and/or officers, (iii) de facto exercise of control, (iv) unity of personnel policies emanating from a common source, and (v) the dependency of operations. 32 20 C.F.R. S 639.3(a)(2). The five factors will hereinafter be referred to as the DOL factors. 33 The Department of Labor's supplementary information regarding its WARN Act regulations explains that: 34 The intent of the regulatory provision relating to independent contractors and subsidiaries is not to create a special definition of these terms for WARN purposes; the definition is intended only to summarize existing law that has developed under State Corporations laws and such statutes as the NLRA, the Fair Labor Standards Act (FLSA) and the Employee Retirement Income Security Act (ERISA). The Department does not believe that there is any reason to attempt to create new law in this area especially for WARN purposes when relevant concepts of State and federal law adequately cover the issue. 35 54 Fed. Reg. 16,045 (Apr. 20, 1989). 36 The intersection of the regulatory factors and the supplementary information has created considerable confusion among courts searching for a single test to determine the status of affiliated corporations. See Cynthia Nance, Affiliated Corporation Liability Under the WARN Act, 52 Rutgers L. Rev. 495, 535-36 (2000) [hereinafter Nance, WARN Act] (describing contradictory holdings). The problem arises because the jurisprudence contains several tests for determining when two corporations compose a single entity depending on whether the cause of action accrues under state or federal law, as well as on the particular type of claim at issue. Further, the DOL factors do not precisely correspond to any of the established tests for such determinations. Courts examining affiliated corporations under the WARN Act have often applied two or more tests, purporting to average the results, usually without any systematic method for doing so. See, e.g., United Paperworkers Int'l Union v. Alden Corrugated Container Corp., 901 F. Supp. 426, 436-39 (D. Mass. 1995) (conducting, inter alia, a state alter ego test, but ultimately jettisoning the results on the ground that federal liability standards should not turn on state protections for corporations). 37 A further complication comes from the fact that we have before us in this case not the traditional parent/subsidiary relationship but a relationship that began as an arrangement between a secured lender and a borrower -- a situation unaddressed by either the Act or the regulations. Thus, we must determine whether the standard WARN Act test -- whatever test that might be -- is even applicable under these circumstances. To that end, we will first briefly sketch some of the methods available for determining intercorporate WARN Act liability, ultimately concluding that rather than simply choosing one of the established tests and importing it to the WARN Act context, the appropriate test is the one specifically delineated in the DOL regulation. We further conclude that the supplementary information provided by the Department of Labor was not intended to encourage courts to choose a different test, but was merely intended to clarify that courts may draw on concepts in existing precedent when interpreting and applying the DOL factors. We will then turn to the question whether the DOL factors should apply to situations involving lenders rather than parents, ultimately concluding that the factors should be the same for both. 38