We frequently receive calls and emails from clients who are buying or selling a business in South Carolina and have last-minute questions about the employment-law consequences of the transaction. A myriad of employment laws may apply to the purchase or sale of a business, like the WARN Act, COBRA notices, and the FMLA. Buying or selling a business is one of the largest financial decisions a person makes, can involve a substantial amount of risk, and should not be taken lightly. This journal entry will cover some of the broader employment law topics concerning buying or selling a business in South Carolina, but nothing can take the place of consulting with an experienced employment lawyer.
Employees of the Business
A business owes its employees certain duties, notices, and notification periods when it transfers ownership. A person or business buying or selling a business in South Carolina must be aware of whose duty it is to provide these protections and notices.
The Worker Adjustment and Retraining Notification (WARN) Act has been in effect since 1989. It intends to protect workers and their families by requiring employers to provide 60 days’ notice to employees if a business is closing or laying off employees. Not every employer must abide by the WARN Act – only those with 100 or more employees who have worked more than 6 months in the last 12 months for, on average, more than 20 hours a week. It includes private, nonprofit, public and quasi-public entities, but does not include federal, state or local government entities.
Even if the employer is covered by the law, notice is only required if certain thresholds are met:
- A “mass layoff” occurs when there is loss of employment for at least 30 days at any single site of employment of
- at least 33% of the full-time employees and at least 50 full-time employees; or
- at least 500 full-time employees.
- A “plant closing” is the permanent or temporary shutdown of a single site of employment, or units within a single site, if the shutdown results in employment loss at the single site during any 30-day period for 50 or more full-time employees.
If these thresholds are met, notice must be given of any mass layoff or plant closing at least 60 days in advance. The notice must go to the employees, or if they are represented by a union, to the union, and to the South Carolina Department of Employment and Workforce and the chief elected official of the city or county in which the site of employment is located.
If a covered business is being sold:
- The seller is responsible for giving notice of any plant closing or mass layoff up to and including the closing date
- The buyer is responsible for notice requirements if the plant closing or mass layoff occurs after the date/time of the sale
- No notice is required if the sale will not result in a mass layoff or closure of the business
Failing to comply with WARN Act requirements can result in civil penalties and/or the requirement to pay back wages and benefits. There are nuanced requirements and exceptions to the WARN Act, so it is imperative to consult with an experienced employment lawyer before buying or selling a business that is subject to the WARN Act notice requirements.
COBRA health benefit provisions require group health plans to provide a temporary continuation of group health coverage that otherwise might be terminated. Typically, employees who are terminated from employment must be given the opportunity to buy coverage, at full price, for up to 18 months following the loss of coverage or termination of employment. COBRA obligations can be delegated and addressed in the contract to buy/sell a business. However, if the contract does not address COBRA obligations, federal regulations have offered some guidance.
Generally, the seller must offer COBRA coverage to any of its employees whose employment and health insurance coverage was terminated because of the sale of the business, regardless of whether the buyer will provide group health insurance to employees who transferred. However, there are some circumstances in which the buyer may be required to offer the COBRA coverage. COBRA coverage rules will apply to purchases as a result of a Title 11 bankruptcy proceeding.
Certain employees are entitled to leave pursuant to the Family Medical Leave Act. In the event a buyer intends to run the business in essentially the same manner in which the seller ran the business, the buyer may be obligated to honor vested FMLA rights and leave. Determining whether the buyer/employer will be covered depends on whether the buyer is a “successor in interest” to the covered seller. Factors to determine whether a buyer is a “successor in interest” include:
- Use of the same plant
- Continuity of workforce
- Substantial continuity of business operations
- Similarity of jobs and working conditions
- Similarity of product/services
- Similarity of supervisors and
- The ability of the predecessor/seller to provide relief.
A buyer will need to examine not just one or two of these factors but must examine the entirety of the circumstances to determine whether it is a successor in interest and must honor vested FMLA entitlements. If the buyer is determined to be a successor in interest and is covered under the FMLA, the time employees worked for the seller will likely be counted when FMLA eligibility is determined following the sale.
A buyer must beware of the labor and union conditions of the business to be purchased. A buyer purchasing the assets of another company may be jointly and severally liable for the seller’s unfair labor practices. Likewise, the buyer may be bound by the seller’s duty to bargain with the certified bargaining agent of the seller if the buyer is considered a successor. When a buyer has the opportunity through due diligence to learn of potential unfair labor practices and to account for them in the purchase of the business, then the purchaser may be jointly liable for the harm. With sufficient due diligence, it may be possible to include labor disputes in the scope of the agreement to buy/sell a business and to determine potential liabilities related thereto.
Consult Before Signing
Corporate transactions can be replete with risk and liability. Whether buying or selling a business in South Carolina, it is critical that the appropriate professionals are consulted for advice. If you are considering purchasing or selling a business in South Carolina, contact an experienced employment lawyer at Gignilliat Savitz & Bettis LLP to help with your transaction.