The New Jersey Superior Court, Appellate Division, has broadened the scope of liability under the state’s “Mini-WARN Act,” holding that the plant closure and mass-layoff notification law may apply to parent and affiliated companies.

The law—formally the Millville Dallas Airmotive Plant Job Loss Notification Act (Millville Dallas)—requires employers to provide 60 days’ advance notice or severance pay in the event of a transfer or termination of operations or a mass layoff, as defined by the statute.

In DeRosa v. Accredited Home Lenders, No. A-3727-09T3, 2011 N.J. Super. LEXIS 109 (N.J. Super. App. Div. June 14, 2011), the employer, Accredited Home Lenders, was owned and managed by a private equity fund and operated by an affiliate of that fund. In 2008, Accredited’s operations were shut down, but no advance notice was provided to employees, as required by both the New Jersey law and the analogous federal WARN Act.

After Accredited filed for bankruptcy, the plaintiffs sought to hold the parent and operating company liable under Millville Dallas. The trial court granted the defendants’ motion for summary judgment, holding that the definition of “employer” under New Jersey’s law was limited to direct employers and did not encompass parent corporations or affiliated businesses.

The Appellate Division reversed the trial court, concluding that because Millville Dallas is modeled on the federal statute, and federal courts have interpreted the WARN Act to apply to parents and affiliates, New Jersey’s law is similarly applicable to those entities. The court also held that the federal five-factor test for determining parent or affiliated company liability was applicable to Millville Dallas.The federal test evaluates the relative independence of the parent or affiliated company and the putative employer according to the following factors:

  1. Common ownership
  2. Common directors and/or officers  
  3. De facto exercise of control  
  4. Unity of personnel policies  
  5. Dependency of operations

By way of caution, although the New Jersey court has interpreted Millville Dallas according to federal standards in the context of parent and affiliated company liability, the state law differs from its federal counterpart in a number of ways, notably in the context of affirmative defenses, as certain defenses to WARN Act liability are not available under Millville Dallas. Failure to appreciate those distinctions can lead to imposition of significant liability.