Labor and Employment Update - Summer 2011



A recent decision by the National Labor Relations Board (“NLRB”) could have wide-ranging implications as it significantly expands the right of non-employees to handbill on private property.
In New York New York Hotel and Casino, employees of a restaurant - operated by a separate company than the casino - were attempting to organize as a Union. During their off duty time, employees distributed handbills about the restaurant and the organizational campaign throughout the casino. These were the restaurant employees and not employees of the casino. As a result, the casino asked that the employees stop handbilling on their property and eventually charged the employees with trespassing.

The employees filed an unfair labor practice charge and the NLRB held that the casino’s action was unlawful, creating a new test for balancing the property rights of the owner against the rights of the employees to organize. The new test states that a property owner may prohibit off duty employees of a sub-contractor from engaging and handbilling only where: 1) it can demonstrate that the activity of the sub-contracted employees “significantly interferes” with the owner’s use of its property; or 2) there is another legitimate business reason to discuss to justify the exclusion of the sub-contractor’s employees from the property. In this case, the casino could not meet the test and its actions were deemed unlawful.
This decision precludes employers from having a blanket rule that non-employees are forbidden from handbilling on their property. This ruling may have particular impact on employers and property owners in circumstances where sub-contracting is typically present such as shopping malls and hospitality venues. 

Charles A. Ercole

In CIGNA Corp. v. Amara, a recent United States Supreme Court decision, the Court appeared to expand the potential liability that companies may have in the event there is a conflict or “error” between language in a summary plan description (SPD) and the actual language of an ERISA Plan. In the past, the Supreme Court has held that the language in ERISA that states plaintiff’s are entitled to “appropriate equitable relief” is limited to equitable remedies such as injunctions, restitution, and mandamus.
The case involved CIGNA’s conversion of a defined benefit pension plan based on a final average salary formula to a cash balance plan beginning in 1998.   Under the new plan some employees would receive fewer benefits than they would have under the pre-1998 defined-benefit system.  However, CIGNA did not explain this in its descriptions of the new plan. Instead, CIGNA told employees that the new plan provided “an overall improvement in retirement benefits” and that retiring employees in later years would receive at least as much as the benefits to which they were entitled as of January 1, 1998.   In a class action,    plaintiffs charged CIGNA with failing to provide appropriate notice of the changes to the Plan. The plaintiffs were successful at the District Court level because the Court held that CIGNA had violated ERISA’s notice and disclosure requirements because the SPD failed to explain the benefits accurately. 

This case emphasizes that employers must pay close attention to the language of SPD’s and other notices that might be given to employees (or their beneficiaries) concerning their benefit plans. Employers should at least periodically have counsel review their plans to ensure compliance. 


On July 8, 2011, Bankruptcy Judge Mary Walrath, in D’Amico v. Tweeter Opco, LLC, held that there was sufficient evidence at the summary judgment stage to find that an affiliated entity, Schultze Asset Management, LLC (“SAM”), constituted a single employer with the debtor in an action asserting Work Adjustment and Restraining Notification Act (the “WARN Act”) claims. In deciding this question, Judge Walrath applied the Department of Labor (“DOL”) five-factor test, which asks if: (1) the parties shared common ownership; (2) the parties had common directors and/or officers; (3) the affiliated entity had de facto control over the debtor; (4) the entities shared personnel policies; and (5) there was a dependency of operations between the two entities. The Court noted that this is a non-exhaustive list and that the trier of fact is permitted to consider other “evidence of entanglement.”

Judge Walrath concluded that the first two factors weighed in favor of the plaintiff while the latter two factors weighed in favor of the defendant. When analyzing the remaining factor - whether SAM had de facto control over the debtor - the Court explained that that prong “carries special weight.” The focus of this prong is whether the affiliated entity “has specifically directed the allegedly illegal employment practice that forms the basis for the litigation.” Even where the fourth and fifth prongs were not met, the Court found “single employer” status because the de facto control prong clearly was met. Among the facts that compelled the Court’s decision were: (1) SAM’s employees sat on the debtor’s board; (2) SAM’s inside counsel (who was being paid by SAM), supervised the employment action at issue; (3) SAM directed one of its employees to participate in the termination of the debtor’s employees (while being paid by SAM); (4) a director and/or officer of SAM, who was also on the debtor’s board, repeatedly called for reductions in the debtor’s payroll; and (5) one of SAM’s officers wrote a letter stating that SAM “needed tighter control of [the debtor] within its own organization.” Based on these facts, the Court found that this was, in fact, an egregious case of de facto control and, therefore, SAM was a single employer with the debtor. 
Just as Judge Walrath’s decision in D’Amico concerning single employer status focused and seemed to turn on the de facto prong, so too did her decision just months ago in John Manning, et al. v. DHP Holdings II Corp. In John Manning, as in D’Amico, the Court found that the first two prongs weighed in favor of the plaintiffs while the last two weighed in favor of defendants. Quite notably, in discussing the import of the de facto element, the Court cited a Second Circuit case, Coppolla v. Bear Stearns & Co., Inc., for the proposition that the DOL factors other than the de facto control factor are “not really compelling.” Accordingly, the Court’s determination centered around the same question: Which entity specifically directed the allegedly illegal employment practice at issue? Despite asking the same question as in D’Amico, the Court came to the opposite conclusion because the inquiry is necessarily fact specific.

In John Manning, the affiliated entity, HIG Capital, LLC, was the debtor’s parent company. It was undisputed that it was the chief restructuring officer (“CRO”) of the debtor who made the decision to terminate the employees. Nevertheless, the plaintiffs argued that HIG, in fact, was the party who directed this action because it controlled the decisions made by the CRO. While there was no direct evidence of this control, the plaintiffs asked the Court to infer such control from the fact that, prior to the CRO being hired, HIG had already discussed closing debtor’s plants and terminating debtor’s employees. The Court found that this inference was not supported by the evidence, which showed that no HIG employee actually had knowledge that the debtor’s employees were being terminated or the circumstances surrounding those terminations. The fact that HIG’s directors had reached the same conclusion as the debtor’s CRO concerning cost-cutting and facility closings did not, to the Court, demonstrate the control over the decision the plaintiffs argued could be inferred.

These cases provide some instruction to parent companies, lenders, and other affiliated entities on how to minimize their exposure to WARN Act liability. 

Lee D. Moylan