Mergers & Acquisitions/Downsizing

Almost ten months into the Trump Administration, the executive and legislative branches have been preoccupied with attempting to repeal and replace the Affordable Care Act (“ACA”) – but each attempt has thus far proved fruitless.  While the debate rages over the continued viability of the ACA, as we stated in our previous Take 5, employers should remember that obligations to comply with Section 1557 (the non-discrimination provision of the ACA) and the final rule implementing that provision remain.  But there have been developments regarding which characteristics are protected by Section 1557.  In this Take 5, we explore whether Section 1557 continues to cover gender identity and transition services.

Although the health care debate has received the bulk of the media attention, other legal developments also promise to have significant impact on health care employers.  For instance, the  Equal Employment Opportunity Commission (“EEOC”) appears to have set its sights on the accommodation of disabled workers in the health care industry, and recent decisions regarding employees’ rights to use medical marijuana may impose new burdens on employers.

These and other developments are discussed in this edition of Take 5:

  1. Will The Affordable Care Act’s Non-Discrimination Regulations Continue to Cover Gender Identity and Transition Services?
  2. Restrictive Covenants – How Effective are Non-Competes and Non-Solicits in the Health Care Industry?
  3. Navigating the Interactive Process:  Best Practices for Complying with the ADA
  4. A Growing Trend In Favor of Medical Marijuana Users in the Employment Context
  5. ERISA Withdrawal Liability: Make Sure to Look Before You Leap Into Mergers and Acquisitions

Read the full Take 5 online or download the PDF.

Employers Under the Microscope: Is Change on the Horizon?

When: Tuesday, October 18, 2016 8:00 a.m. – 4:00 p.m.

Where: New York Hilton Midtown, 1335 Avenue of the Americas, New York, NY 10019

Epstein Becker Green’s Annual Workforce Management Briefing will focus on the latest developments in labor and employment law, including:

  • Latest Developments from the NLRB
  • Attracting and Retaining a Diverse Workforce
  • ADA Website Compliance
  • Trade Secrets and Non-Competes
  • Managing and Administering Leave Policies
  • New Overtime Rules
  • Workplace Violence and Active-Shooter Situations
  • Recordings in the Workplace
  • Instilling Corporate Ethics

This year, we welcome Marc Freedman and Jim Plunkett from the U.S. Chamber of Commerce. Marc and Jim will speak at the first plenary session on the latest developments in Washington, D.C., that impact employers nationwide.

We are also excited to have Dr. David Weil, Administrator of the U.S. Department of Labor’s Wage and Hour Division, serve as the guest speaker at the second plenary session. David will discuss the areas on which the Wage and Hour Division is focusing, including the new overtime rules.

In addition to workshop sessions led by attorneys at Epstein Becker Green – including some contributors to this blog! – we are also looking forward to hearing from our keynote speaker, Former New York City Police Commissioner William J. Bratton.

View the full briefing agenda here.

Visit the briefing website for more information and to register, and contact Sylwia Faszczewska or Elizabeth Gannon with questions. Seating is limited.

Our colleague Marc A. Mandelman, a Member of the Firm at Epstein Becker Green, has a post on the Financial Services Employment Law blog that will be of interest to many of our readers in the health care industry: “8th Circuit Rules Parties to Corporate Transactions Cannot Contract Around the WARN Act Sale of Business Exception

Following is an excerpt:

In a rare case interpreting the Worker Adjustment and Retraining Notification (“WARN”) Act “sale of business” exception, the U.S. Court of Appeals for the 8th Circuit recently held in Day v. Celadon Trucking Servs., Inc., 8th Cir., No. 15-1711 (July 5, 2016) that a buyer of a business remained liable under WARN to the seller’s employees to whom the buyer did not make offers of employment, despite provisions in the asset purchase agreement (“APA”) that placed all WARN Act liability on the seller. …

The key takeaway of the Day case for parties to a corporate transaction is that WARN liabilities are governed by statute, and the implications of WARN obligations and the sale of business provision of WARN must be carefully evaluated.  The case highlights that although the sale of business exception may be helpful to buyers in absolving them of WARN obligations to employees who they hire, the application of this important WARN “exception” may also result in the buyer remaining liable for the seller’s failure to provide WARN notice to employees whom the buyer does not offer continued employment, particularly where neither party satisfied the obligation to issue WARN notice or provide the employees with WARN pay in lieu of notice.

Read the full post here.

For a physician who has spent his or her whole professional life developing and growing a medical practice, the process of selling that practice can be a traumatic experience.  Typically, the physician may focus on the short term, attempting to maximize the price at which the practice will be purchased and the applicable payment terms.  However, the long term happiness of the selling physician may depend less on the size of the purchase price at which the practice is sold, and more on how well the physician negotiates the terms and conditions of employment following the acquisition, most notably where the physician is moving from a smaller medical practice setting to a larger institutional setting, such as being employed by a hospital system or large, multi-specialty medical practice.  [NOTE:  While this blog focuses on physicians, the same issues would also apply to other health care practitioners, such as dentists and oral surgeons, podiatrists, chiropractors and the like.]  

This blog takes a closer look at the issues which may be of critical importance to the selling physician, as he or she enters into the new, post-acquisition employment arrangement with the purchasing hospital or medical practice.  Unlike most of our blogs, which provide answers, this blog is designed primarily to provide questions – – questions that should be answered as part of negotiating the final employment agreement.

  • Term – What is the initial term of the employment agreement?  Are there automatic renewal terms, or can the physician get out at the end of the initial term?  Negotiating the term of the new employment agreement may be complicated by the nature of the physician group being acquired.  For example, the more senior physicians may not be willing to make a long-term commitment to the new employer (e.g., 5-10 years), while the more junior physicians may be looking for that exact type of job security.  It is also important to keep in mind how the term of the employment agreement can be impacted by the other items discussed below.  (A five-year agreement that can be terminated without cause at any time on 30-days written notice by either party is not a five-year agreement; practically speaking, it is a rolling 30-day agreement.)  Similarly, while the agreement may have a term of five years, compensation adjustments may occur more frequently.
  • Duties – Negotiating the duties for the employed physician generally does not get intense, but there are some critical issues on which the physician should focus.  Can the physician be relocated to one or more other offices during the term of the agreement, without his or her consent?  What are the call coverage obligations?  Will the physician be authorized to moonlight, or take on medico-administrative responsibilities, such as medical or service line director positions?  In the end, the physician and the employer group should have a clear, mutual understanding of the employee’s day-to-day duties on behalf of the group.
  • Compensation – Even something as simple as a guaranteed base salary can be complicated in fact, so particular attention should be paid to all aspects of the compensation arrangement.  Beyond base salary, as we have previously described, it is critical to understand fully how compensation may be calculated, such as where compensation is based on wRVUs.  It is also important to understand how other aspects of compensation may work, such as bonus calculations (e.g., are bonuses prorated for partial years?), medical or service line director fees, speaking fees or honoraria, expert witness fees, royalties, etc.
  • Benefits – For the most part, employee benefits will not be controversial, as the employer is likely to have a standard package of benefits (health, dental, disability and perhaps group life insurance, pension/profit-sharing plan, etc.) for all physician employees.  However, benefits may also encompass non-standard items, and it is important for the employee to make sure that all promises made by the employer are included in the written employment agreement; this could include items such as use of a company car (or, alternatively, an automobile allowance), purchase and/or use of a smart phone (including monthly service fees), support services (e.g., physician extenders), etc.  Maternity/family leave may also be an important issue to pin down, during negotiations.
  • Restrictive Covenants – Typically, the post-acquisition physician employment agreement will contain several types of covenants – – (i) a covenant not to compete, which would keep the physician from practicing medicine within a certain geographical area for a certain period of time, following termination of employment; (ii) a no-pirating covenant, which would keep the physician from soliciting or employing the practice’s other employees following termination; (iii) a non-solicitation covenant, which might be aimed at post-termination solicitation of patients, or referral sources, or both; and (iv) confidentiality and non-disclosure covenants, which might also deal with access to patient medical records following termination of employment.  Each of these covenants should be understood fully by the physician, so that there are no surprises down the road, should the employment arrangement not work out as planned.  Also, any necessary exceptions to the covenants (e.g., maintaining privileges at a particular hospital or surgery center) should be hammered out up front.  [NOTE:  Some states prohibit the use of non-compete agreements as applied to physicians, primarily for public policy reasons, although this is less common where the non-compete agreement is made in conjunction with the sale of the medical practice.]
  • Termination – We have previously discussed the importance of the termination provisions in a physician employment agreement.  On the front end, the physician should be clear on the different types of terminations (with cause, without cause, non-renewal), and, related specifically to termination for cause, the objective (e.g., loss of license or DEA number) or subject (e.g., engaging in any act detrimental to the best interest of the employer) nature of the specific grounds for termination.   The physician should also understand precisely what consequences attach to each type of termination:  Will accrued but unpaid bonuses be forfeited if the physician resigns or is fired for cause?  Who pays for tail coverage?  Will all of the restrictive covenants apply, if the physician is terminated without cause by the employer?
  • Dispute Resolution – Many physician employment agreements contain an arbitration, mediation or other form of dispute resolution, which may restrict the parties’ ability to go directly to court, should a contract dispute occur.  While there is typically not a lot of back and forth concerning these dispute resolution provisions, it is important for the physician to understand the dispute resolution process:  Which issues require arbitration or mediation?  Who pays the costs?  Where does the arbitration or mediation take place?  What rules apply?  Is the arbitration or mediation binding on the parties, or just a preliminary step before a suit is filed?
  • Post-Termination – Dealing with obvious post-termination issues is better done prior to the start of the employment arrangement, rather than in real time at the end of that relationship, when emotions can run high and the “practice acquisition euphoria” has worn off.  So, it pays to negotiate the basics into the employment agreement up front:  What degree of cooperation is required between the parties, following termination?  What happens if the employer is hit with a recoupment action by a payor, based on the coding practices of the employee prior to termination?  Who pays for tail coverage?  how are medical records handled?

The Bottom Line:  While it is certainly important to focus on the purchase price and payment terms, where the physician is selling his or her medical practice, it is just as important for the physician to focus on the post-acquisition employment relationship, so that, in the years following the acquisition, the physician can enjoy both the proceeds of the sale of the practice and the post-acquisition employment arrangement.

Acquirers of businesses often prefer to buy the assets of a seller, rather than the stock, to avoid assuming the seller’s liabilities.  Indeed,  the general common law rule is that a purchaser of assets does not assume the seller’s liabilities absent an agreement to do so, fraud or other inequitable conduct between the parties, whereas in a stock sale, the buyer steps into the shoes of the seller and assumes all assets and liabilities of the seller.  In an asset sale, the seller, in turn, would typically use part or all of the sale proceeds to pay its liabilities.  During the pre-sale due diligence process, the parties typically exchange information about themselves including, most importantly, information concerning the seller’s assets, actual and potential liabilities and claims, employee and employee benefits information and so on, and the acquirer often hires many of the seller’s employees in order to carry on the business.

Unwittingly, however, asset purchasers may, under recent decisions, actually assume liability for ERISA and other employment-related liabilities and claims despite an intention to the contrary.  Federal circuit and district courts have departed from the general rule and expanded liability under the federal common law successorship doctrine.  For example, in a 2011 decision in Einhorn v. M.L. Ruberton Construction Co., 632 F. 3d 89 (3d Cir. 2011), Ruberton agreed to purchase assets and hire employees of Statewide, a construction contractor.  Ruberton took over several of Statewide existing projects as well.   Under two collective bargaining agreements, Statewide was delinquent in making employee benefit contributions  to a union’s pension and welfare funds and, as part of a deal struck among the parties and the union, Statewide agreed to remit the payments owed to the funds. After the sale closed, Statewide defaulted, and the funds’ administrator sued Ruberton to recover the delinquent funds contributions.  See Reed v. EnviroTech Remediation Services, Inc. et. al., Civ. No. 09-1976 (D. Minn. July 1, 2011).

The Third Circuit Court of Appeals applied the successorship doctrine to hold Ruberton liable for Statewide’s debts to the ERISA funds to “vindicate important federal statutory policy” and because Ruberton had notice of the liability prior to sale and there was sufficient continuity of Statewide’s operations after the sale.  Id. at 99.  This same rationale has been used to hold an asset purchaser liable for claims of employment discrimination, FLSA wage and hour claims, and claims of unfair labor practices under the National Labor Relations Act brought against the seller of which the purchaser was aware at the time of sale.  See Brzozowski v. Correctional Physician Services, 360 F. 3d 173 (3d Cir. 2004) ; Steinbach v. Hubbard, 51 F. 3d 843 (9th Cir. 1995) ; Golden State Bottling Co., 414 U.S. 168 (1973) .

The bottom line:  Buyer beware if you are or may be a  “successor” to the seller!  Asset purchasers must pay careful attention to due diligence information and understand that they may be unable to legally avoid responsibility for ERISA and other employment/labor-related claims and liabilities of the seller.   In order to best protect themselves against what happened to Ruberton and others in the cases discussed above, these issues must be factored into the negotiations of the purchase price, indemnification obligations, mandatory payments, reserves, and other terms of the deal.

A monthly breakfast law briefing and networking series specifically  designed for health care and wellness company executives and human resources professionals.  This informative series will address labor and employment issues during these challenging times and offer solutions.

For additional information and to register,  contact Carla Llarena or by tel: (404) 869-5363.

February 8, 2012 
Today’s OSHA: What Healthcare Companies and Practices Need to Know

March 14, 2012
It Can Hurt to Ask: TMI in the Digital Age
(Focusing on Social Media & Background Checks)

April 11, 2012
Best Practices to Avoid Wage and Hour Liability

May 9, 2012
What You Need to Know About the Americans with Disabilities Act,
and How Your Managers are Likely Getting it Wrong

June 13, 2012
E-Verify and Complying with Federal and State Immigration Law

July 11, 2012
Selling a Physician’s Practice

August 8, 2012
Employee Handbooks: How to Draft Them to best Protect Your Company and Communicate to Your Employees

September 12, 2012
Alternate Dispute Resolution: Is Mediation and/or Arbitration Preferable to Litigation for Healthcare Employers?

October 10, 2012
The 2012 Presidential Election and How it Will Impact You as an Employer

November 14, 2012
Doctor and Executive Compensation and Benefits

December 12, 2012
The Top 10 Biggest Mistakes that Health Care Employers Make
and How to Avoid Them

Epstein Becker Green
Resurgens Plaza
945 East Paces Ferry Road, Suite 2700
Atlanta, GA 30326-1380

8:30 a.m. – 9:00 a.m. Registration, Breakfast, and Networking
9:00 a.m. – 10:00 a.m. Program, Including Q&A Session