Reminder: NJ “Change of Ownership” Requirements for Health Care Transactions Have Changed

This year will mark the first full calendar year in which the Change of Ownership (CHOW) requirements added by New Jersey Senate Bill 315 (the “Bill”) will be in effect for certain health care transactions. Accordingly, it serves to be mindful of the Bill’s impacts when mapping out a prospective transaction.

By way of background, the Bill was passed in August of 2022 and went into effect on November 18, 2022. Per the Office of Governor Phil Murphy, the chief purpose of the Bill, now codified as N.J. Stat. Ann. § 34:11-4.15, is to afford “employment protections for workers in the health care sector when there is a change in control of their health care entity employer.” Specifically, in enumerated, non-governmental health care transactions, eligible employees of the “target” entity (generally, individuals employed at the health care entity during the 90 days preceding a CHOW, or a former employee with recall rights under an agreement with the former employer) must be offered continued employment for a period of at least four months following the closing of the transaction and CHOW (subject to limited exclusions, discussed below). Moreover, eligible employees cannot have their wages, benefits or paid time off reduced as a consequence of the CHOW. Lastly, the Bill imposes pre-closing notice obligations on the previous employer/owner to apprise employees of their rights pursuant to the Bill.

The Bill, which applies to hospitals, rehabilitation centers, nursing homes, outpatient clinics, staffing registries and home health care services agencies, as well as other health care facilities and entities licensed pursuant to N.J. Stat. Ann. § 26:2H-1 et seq. or to N.J. Stat. Ann. § 45:11-23 et seq., defines “Change in Control” (which is akin to a CHOW) as:

… any sale, assignment, transfer, contribution or other disposition of all or substantially all of the assets used in a health care entity’s operations; or any sale, assignment, transfer, contribution or other disposition of a controlling interest in the health care entity, including by consolidation, merger, or reorganization, of the health care entity or any person who controls the health care entity; or any event or sequence of events, including a purchase, sale, or termination of a management contract or lease, that causes the identity of the health care entity employer to change, but shall not include a change in control in which both the former health care entity employer and the successor health care employer are government entities. A change in control shall be defined to occur on the date of execution of the document effectuating the change. [emphasis added]

Accordingly, the Bill applies to both asset sales, transfers or contributions, as well as sales or assignments of a controlling interest in a health care entity, without regard to the size of the former employer/owner entity or the successor employer/owner entity. Further, the Bill states that no CHOW may be consummated absent a written contract between the former employer/owner and successor employer/owner that provides:

• The successor employer/owner shall offer employment during a transitional period of not less than four months following the CHOW (the “Transition Period”) to each eligible employee, with no reduction of wages or paid time off, and no reduction of the total value of benefits, including health care, retirement and education benefits, provided that:
  • the offer be in writing and remain open for at least 10 business days from the date of the offer;
  • during the Transition Period, the successor employer/owner shall 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 are available; and
  • if, at the time of the CHOW and throughout the Transition Period, the total number of employment positions is less than the total number of eligible employees, the choice of employees to be employed shall be based on seniority and experience.
• An eligible employee shall not be discharged without cause during the Transition Period, except if the employer reduces the total number of employees, including at the time of the CHOW, but only if the choice of employees to be retained is based on seniority and experience and the laid off employees are offered any positions they had previously held that are subsequently restored during the Transition Period;
• At the end of the Transition Period, the successor shall perform a written evaluation for each retained eligible employee and offer the employee continued employment if an employee’s performance during the Transition Period was satisfactory; and
• A successor shall retain, and provide to the employee upon request, a written record (with required detail) as to each offer of employment and evaluation, for not less than three years from the date of the offer or evaluation.

In CHOW transactions, no less than 30 days before the CHOW is finalized, the former employer/owner must:

• Provide the successor employer/owner, and any collective bargaining representative the employees may have, a list containing the name, address, date of hire, phone number, wage rate and employment classification of each eligible employee; and
• Inform all eligible employees of their rights provided by the Bill and post, in a conspicuous location or locations accessible to all employees, a notice setting forth the rights provided by the Bill.

Lastly, the Bill provides a cause of action to eligible employees who are terminated in violation of the provisions of the Bill, expressly entitling the impacted employee to remedies including injunctive relief for immediate reinstatement, as well as imposing monetary penalties for a successor employer/owner failing to compensate an eligible employee as required by the Bill.