Effective November 16, 2022, New Jersey will impose additional requirements on both the buyer and seller when a ‘health care entity’ undergoes a change in control. In accordance with S315, which was enacted on August 18, 2021, the State will require the selling health care employer entity to provide certain notices and information to the affected employees. The law also places significant obligations on the successor employer, including but not limited to guaranteeing employment to the former employer’s affected employees for up to four months after the change in the control in some cases. 

These new standards demonstrate a steep departure from current employment norms and typical arms-length M&A transactions, which have traditionally allowed both the seller and buyer significant discretion regarding the employment of individuals affected by such transactions.

New Law Impacts Covered “Health Care Entities” Involved in any “Change in Control”
The law applies to covered health care facilities undergoing change in control transactions. In this context, "health care entities" include a health care facility, a staffing registry, or a home care services agency licensed by the State. The definition is broad, and will affect every licensed hospital, clinic, home health agency, assisted living residence, personal care home, or assisted living program that undergoes a change in control. However, in the event that a health care entity  is part of a larger organization that includes facilities that are not licensed by the State, the portion of the facility that is not licensed is excluded from the “health care facility” that is covered by this new law.

A covered “change in control” transaction, may include sales, transfers, and other arrangements that result in the change the control of a health care entity, including consolidations, mergers, and reorganizations. The only exclusions relate to arrangements where both the former and successor health care entity employers are government entities.

The requirements listed below pertain to all health care entities engaged in a covered change in control transaction, as well as “eligible employees” affected by the change in control. An “eligible employee” means: (1) any non-managerial person employed at an affected health care entity during the 90-day period immediately preceding a change in control, except for individuals who have been terminated for cause during the same period; or (2) any person formerly employed at the health care entity who retains recall rights under an agreement with the health care entity employer.

Requirements for Seller and Purchaser Employer Entities Under the New Law:

1.    At least 30 days before the change in control, the former health care entity employer (seller) shall:

• Provide the successor health care entity employer and any collective bargaining representative for the employees with the following:  the name, address, date of hire, phone number, wage rate, and employment classification of each eligible employee employed at the affected health care entity;
• Inform all eligible employees of their rights provided by this section; and
• Post, in a conspicuous location or locations accessible to all employees, a notice setting forth the rights provided by this new law.

2.    The parties to the transaction must agree in writing that the successor health care entity employer (acquiring entity) shall:

• Offer employment to all eligible employees for a period of at least four months (i.e. “transition period”), with no reduction of wages, paid time off, or total value of benefits. This offer must be in writing and left open for at least 10 days;
• During the transition period, offer all available employment positions to eligible employees who had previously held the positions until the available employment positions are filled or until no more eligible employees; however, if the total number of employment positions is less than the total number of eligible employees, the successor employer may determine which individuals to employ based on seniority and experience;  
• Continue to employ all eligible employees during the four-month transition period, except in cases of termination or cause or certain layoffs due to reductions in force; 
• At the end of the transitional period, perform a written performance evaluation for each retained eligible employee, and offer the employee continued employment if an employee's performance during that period was satisfactory; and 
• Retain and provide to the employee or their representative, upon request, a written record of each offer of employment and every written evaluation prepared for not less than three years from the date of the offer or evaluation. The record must include the name, address, date of hire, phone number, wage rate, and employment classification of the employee.

The new law deviates substantially from the traditional concept that employment is generally considered “at will,” meaning employees can be terminated at any time, with or without cause. The new law is silent on what an employer’s obligations are following this initial assessment period, and whether the employer must demonstrate poor performance to substantiate any termination in the future.

A lengthier discussion of the new law’s requirements can be found here.

Takeaways
Employers who fail to comply with the new law can be subject to steep penalties for each violation, as well as liquidated damages and attorneys’ fees, in addition to other remedies. Health care entities that are contemplating any transactions covered by the law (whether as a seller or buyer) should carefully review their draft purchase agreement and deal documents to ensure compliance with New Jersey law.