Mergers and Acquisitions and the Affordable Care Act
As most employers already know, the Affordable Care Act (a/k/a ObamaCare or the ACA) now imposes health care insurance coverage requirements upon certain employers which have a certain number of full time and full time equivalent employees (“FTEs”). Therefore, it is imperative that consideration be given to whether parties involved in any merger or other acquisition transaction are currently subject to the requirements of the ACA (and if so, whether they are in compliance with such requirements), or will otherwise be subject to the requirements of the ACA following the consummation of the transaction.
If the buyer or seller company is a “small business,” meaning the company has less than 50 FTEs, it should not be subject to the ACA. However, a determination has to be made as to whether or not individuals who are treated as independent contractors are, for the purposes of the ACA, truly independent contractors, or rather are deemed to be employees. While the ACA makes reference to certain federal statutes with respect to this determination, it is clear that the Obama administration has uniquely and aggressively interpreted the ACA to accomplish its objectives. In those circumstances where the seller or buyer company is below 100 FTEs for the year 2015, the company will be exempt from the requirements of the ACA for the year 2015, but subject to the ACA thereafter. Even in those circumstances where companies clearly are subject to the ACA, the question then becomes whether or not all of the individuals who provide services to that company are classified appropriately (employees v. independent contractors), and whether the requirements of the ACA have been complied with regarding those individuals.
A new level of complexity has been added in this area by a relatively recent interpretation of the National Labor Relations Board (NLRB) in a franchise case dealing with the classification issue, in which the NLRB found that the various employees of the franchisees were also employees of the franchisor. This could automatically create, for any national franchise, a situation where the local franchisee meets the large employer threshold of the ACA, and therefore would be liable to comply with the requirements of the ACA. Obviously, the position taken by the NLRB will be contested and is a long way off from being established as binding law upon all employers. Notably, this very issue has already been addressed in various state courts. For instance, in contrast to the NLRB decision, the California State Supreme Court recently determined in a 4 to 3 decision that the employees of a franchisee are also not employees of the franchisor.
While the ACA references certain federal statutes for determining whether or not an individual is an employee, in the recent case of Sam Hargrove, et al. v. Sleepy’s, LLC , the New Jersey Supreme Court has advised the Third Circuit that for the purposes of the wage and hour laws, the interpretation should follow New Jersey case law, which provides a much stricter definition for independent contractors than the federal law. Only time and litigation will tell what interpretation will be made under the ACA for the purposes of determining whether an individual is an employee or an independent contractor with respect to the determination as to whether the employer is a small business subject to the ACA and whether or not an individual is entitled to health care coverage.
In summary, careful consideration must be made in any merger or acquisition transaction as to whether the seller company in an asset purchase or equity purchase is, or the combined company in any merger, consolidation or similar combination will be, subject to the onerous requirements of the ACA based on the number of FTEs of the company. In order to make such a determination, further consideration will need to be made into applicable case law as to whether or not individuals who are designated as independent contractors of the company are truly independent contractors, or rather should be deemed to be employees of the company for purposes of the ACA. However, because the law in this area is not entirely settled and continues to evolve, companies involved in merger or acquisition transactions and companies contemplating merger or acquisition transactions will need to stay informed on these issues.