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Buying out business? Beware mass layoffs

by on
in Employment Law,Human Resources

It’s a blow to companies intent on acquiring another business and replacing current employees with new workers. The California Supreme Court has ruled that local governments can pass “retention ordinances” that require new owners to keep existing employees, at least temporarily.

Expect California towns and cities to enact more of those kinds of laws in the wake of this decision.

Recent case: In 2005, the city of Los Angeles passed the Grocery Worker Retention Ordinance. For grocery stores at least 15,000 square feet that undergo a change of ownership, the ordinance vests current ­employees with retention rights during a 90-day transition period.

It works like this: The current owner prepares a list of nonmanagement employees who have worked there for at least six months as of the acquisition date. The new owner must choose employees from that list for the first 90 days. Those selected can only be terminated for cause during that period. At the end of the transition period, the new owner must deliver a written performance review to each employee. If performance is satisfactory, the ordinance requires the new owner to “consider” offering continued employment.

The California Grocers Asso­ciation challenged the ordinance, claiming it violated due process that state and federal health and safety and labor laws pre-empted it.

The California Supreme Court rejected those arguments and ruled the ordinance valid. In effect, the court concluded that local mu­nici­pal governments have at least a limited right to protect workers from sudden business changes that affect their ability to make a living. (California Grocers Asso­ci­a­tion v. City of Los Angeles, et al., No. S176099, Supreme Court of California, 2011)

Final note: No word yet on whether this case will be appealed to the U.S. Supreme Court.

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