Administaff Companies v. New York Joint Board

United States Court of Appeals

Fifth Circuit

F I L E D

UNITED STATES COURT OF APPEALS

FOR THE FIFTH CIRCUIT July 1, 2003

_______________________

Charles R. Fulbruge III

No. 02-21259 Clerk

_______________________

ADMINISTAFF COMPANIES, INC.,

Plaintiff - Counter Defendant - Appellee,

versus

NEW YORK JOINT BOARD, SHIRT & LEISUREWEAR DIVISION, UNION OF

NEEDLETRADES, INDUSTRIAL AND TEXTILE EMPLOYEES “UNITE”, AFL-CIO,

CLC, etc; ET. AL.,

Defendants,

NEW YORK JOINT BOARD, SHIRT & LEISUREWEAR DIVISION, UNION OF

NEEDLETRADES, INDUSTRIAL AND TEXTILE EMPLOYEES “UNITE”, AFL-CIO,

CLC, as representative of its members who were employees of

TheCustomShop.com Inc and all other similarly-situated former

employees of TheCustomShop.com Inc, whether or not members of the

Union,

Defendant - Counter Claimant - Appellant,

versus

RODNEY TOW, in his capacity as the Chapter 7 Trustee for the

Chapter 7 Bankruptcy Estate of TheCustomShop.com Inc,

Defendant - Appellee.

_________________________________________________________________

Appeal from the United States District Court

for the Southern District of Texas

_________________________________________________________________

Before JONES and CLEMENT, Circuit Judges, and FELDMAN,* District

Judge.

*

District Judge of the Eastern District of Louisiana, sitting by designation.

EDITH H. JONES, Circuit Judge:

The district court granted Administaff Companies, Inc.

(Administaff) summary judgment, concluding that it was not liable

for violations of the Worker Adjustment and Retraining Notification

Act (WARN Act), 29 U.S.C. § 2101 et seq. We affirm.

I. BACKGROUND

Administaff provides personnel management, payroll, and

administrative services for other businesses, essentially operating

as an off-site human resources department. TheCustomShop.com

(TCS), the former owner of a men’s clothing production plant in New

Jersey, contracted for the services of Administaff. In late 2000,

TCS began to encounter financial difficulties. When attempts to

raise capital and to sell the business failed, TCS closed its New

Jersey facility without providing the sixty days notice required by

29 U.S.C. § 2102(a). Administaff did not participate in TCS’s

decision to close its New Jersey plant and was not aware of the

closing until after it occurred.

In April 2001, the Joint Board, the union representing

the employees of the New Jersey facility, demanded that

Administaff, as an employer under the WARN Act, compensate each

member of the bargaining unit for sixty days of pay plus benefits

because the employees did not receive proper WARN Act notice. In

response to the Joint Board’s request, Administaff commenced this

declaratory judgment action. The district court granted

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Administaff’s motion for summary judgment, and we affirm.

II. DISCUSSION

The grant of summary judgment is reviewed de novo and may

be affirmed on any ground raised below and supported by the record.

Yeager v. City of McGregor, 980 F.2d 337, 339 (5th Cir. 1993). We

affirm the district court’s grant of summary judgment on two

grounds. First, based on the plain language of the statute,

Administaff is not liable for failure to give WARN Act notice

because it did not order the closing of the New Jersey facility.

“In a statutory construction case, the beginning point must be the

language of the statute, and when a statute speaks with clarity to

an issue, judicial inquiry into the statute’s meaning, in all but

the most extraordinary circumstance, is finished.” Perrone v. Gen.

Motors Acceptance Corp., 232 F.3d 433, 435 (5th Cir. 2000) (quoting

Estate of Cowart v. Nicklos Drilling, Co., 505 U.S. 469, 475, 112

S. Ct. 2589, 2594, 120 L. Ed. 2d 379 (1992)). The WARN Act

provides that

[a]ny employer who orders a plant closing or mass layoff

in violation of section 3 of this Act [(the 60-day notice

provision)] shall be liable to each aggrieved employee

who suffers an employment loss as a result of such

closing or layoff for [back pay and benefits].

29 U.S.C. § 2104(a)(1) (emphasis added).

Under a plain reading of 29 U.S.C. § 2104(a)(1),

Administaff cannot be liable for the lack of WARN Act notice

because it did not order the closing of TCS’s New Jersey facility.

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See Local 217, Hotel & Rest. Employees Union v. MHM, Inc., 976 F.2d

805, 811 (2d Cir. 1992) (Mahoney, J., concurring ) (“. . . I would

conclude that in view of [the hotel owner’s] undisputed

responsibility for the closing decision, [the owner], and not MHM,

is the ‘employer’ that ‘ordered’ the Summit Hotel closing within

the meaning of § 2104(a)(1), and is therefore the only party liable

under that statute.”).1 TCS ordered the closing of its New Jersey

facility and informed Administaff of its decision after the fact.

Although the Joint Board argues that this construction of

the statute ignores the broad remedial purposes of the WARN Act and

the statute’s legislative history, it does not point to any

legislative history to support its position. In any event, this

Court only resorts to the rule of lenity and legislative history if

the text of a statute is opaque or ambiguous. Perrone, 232 F.3d at

440. Here, the language of the statute is clear. The statute

imposes liability only on an employer who orders the closing of a

plant.

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In MHM, laid-off hotel employees sought medical benefits under the WARN Act from

MHM, a hotel management firm. MHM argued that it was powerless to comply with the WARN

Act’s notice provisions because the owner of the hotel had sole control over the timing of and

decision to end the hotel’s operations. The majority concluded that MHM was a WARN Act

employer because it contracted to manage the hotel. We distinguish the majority’s holding for three

reasons. First, MHM ran every aspect of the hotel on a day-to-day basis in the normal commercial

sense, while Administaff did not have the right to manage or make decisions regarding TCS’s New

Jersey facility; second, MHM carried out the closing of the hotel and ultimately laid off the

employees, while Administaff had nothing to do with the closing; third, MHM was a party to the

collective bargaining agreement, while Administaff was not. We also note that the relevant portion

of MHM is dicta; the court ultimately denied the appellants’ request for a preliminary injunction

because the WARN Act provides only a damages remedy.

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We also affirm summary judgment for the reasons stated by

the district court. The Joint Board argued that Administaff should

be held liable for WARN act violations as a “joint employer” with

TCS, but the district court determined that under the five-factor

test set forth in 20 C.F.R. § 639.3(a)(2) (the DOL factors),2

Administaff’s relationship with TCS did not make it an employer for

WARN Act purposes.

The WARN Act and DOL regulations define an employer as

any business enterprise that employs 100 or more employees. 29

U.S.C. § 2101(a)(1); 20 C.F.R. § 639.3(a)(1). Employers who

violate the WARN Act are liable for back pay and benefits. 29

U.S.C. § 2104(a)(1). Administaff did not employ those who worked

at TCS’s New Jersey facility in the normal business sense; although

Administaff “co-employed” TCS employees so that they could receive

group medical benefits and workmen’s compensation through

Administaff policies, TCS employees did not perform any work or

2

The regulation states:

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.

20 C.F.R. § 639.3(a)(2).

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services for Administaff.3 For Administaff to be liable as an

employer under the WARN Act to those who lost their jobs at TCS’s

New Jersey plant, Administaff must therefore be considered a single

business enterprise with TCS, responsible for TCS’s WARN Act

obligations. Relying primarily on Pearson v. Component Technology

Corp., 247 F.3d 471 (3d Cir. 2001), the district court noted that

courts have applied the DOL factors to determine whether business

entities that are not wholly or partly owned by a parent are

subject to WARN Act liability as an employer; indeed, the DOL

factors specifically address the independent contractor situation,

which we have here.

The first two factors are not at issue in this case. The

third factor, de facto exercise of control, “allows the factfinder

to consider whether the [business in question] has specifically

directed the allegedly illegal employment practice that forms the

basis for the litigation.” Pearson, 247 F.3d at 491. It is

undisputed that Administaff had no role in, or even advance

knowledge of, TCS’s decision to close its New Jersey plant.

With respect to the fourth factor, Administaff and TCS

did not have a unity of personnel policies emanating from a common

source; they had separate responsibilities regarding personnel

issues. Under the Client Service Agreement between Administaff and

3

Administaff may satisfy the statutory definition of “employer” by employing more than 100

employees of its own, but Administaff’s status as a WARN Act employer with respect to its own

employees is not relevant to its relationship with TCS’s employees.

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TCS, Administaff was responsible for the payment of salaries and

wages and the provision of employee benefits. It also reserved the

right to hire and terminate employees, maintain employee records,

and resolve disputes not subject to the collective bargaining

agreement. The Client Service Agreement placed responsibility for

the payment of commissions, bonuses, paid leaves of absence,

severance payments, nonqualified deferred compensation, and equity

based compensation on TCS. TCS alone was responsible for the

operation of its business and the decision to close its New Jersey

plant.

Regarding the fifth factor, dependency of operations,

“courts generally consider the existence of arrangements such as

the sharing of administrative or purchasing services, interchanges

of employees or equipment, and commingled finances.” Id. at 500

(internal citations omitted). While Administaff provided

administrative services to TCS, the companies did not share

administrative services; there was no interchange of equipment or

commingled finances. Administaff “co-employed” TCS’s employees so

that they could receive group medical benefits and workmen’s

compensation through Administaff policies, but TCS’s employees did

not perform any work or services for Administaff.

Like the district court, we reject the Joint Board’s

contention that Administaff should be held liable under the “joint

employer test” used in National Labor Relations Act (NLRA) cases.

Although courts have, in certain circumstances, drawn from NLRA

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case law in interpreting the WARN Act, such an approach would not

be appropriate here. As the Third Circuit explained, “the DOL

factors are the best method for determining WARN Act liability

because they were created with WARN Act policies in mind . . . .”

Pearson, 247 F.3d at 490.4

Finally, that TCS agreed to indemnify Administaff in the

event of a WARN Act violation does not alter our analysis.

Administaff most likely bargained for indemnification to protect

itself in the event it was held liable for its client’s WARN Act

violations. But the indemnification provision in no way suggests

Administaff’s liability.

For the foregoing reasons, we affirm the district court

judgment.

AFFIRMED.

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The Joint Board points out that in response to a commenter’s suggestion that “the regulation

also should recognize the doctrine of joint employer status, as that doctrine has been developed under

the NLRA,” the Department of Labor explained that 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 . . . . To the extent that exi sting law

recognizes the joint employer doctrine . . . nothing in the regulation prevents application of that law.”

54 Fed. Reg. 16042, 16045 (Apr. 20, 1989). To the extent that the regulations incorporate the joint

employer test, it is inconsistent for the Joint Board to argue that the joint employer test, rather than

the DOL factors, should apply.

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