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Plaza Investment Corporation v. New Jersey Department of Labor

A-5178-97T3 (N.J. Super. App. Div. 2000) (Unpublished)

UNEMPLOYMENT—A successor to a business can be assigned the predecessor’s employment experience rating even if it acquired none of the predecessor’s assets.

A landowner sold a piece of property to a real estate holding company and took back a stock pledge agreement and a mortgage from the buyer. The buyer developed the property as a motor lodge with food service, including a restaurant and catering business. The motor lodge was then leased to a related company which became a national franchisee. When the buyer and its operating company defaulted, the seller exercised its rights under the stock pledge agreement and took control of the property. It then evicted the operating company and the franchise agreement was terminated. The facility was closed for a short period of time before the seller reopened a motel on the premises. When it did so, it retained sixty-five percent of the former operating company’s housekeeping staff, but none of its former executives or managers. A Department of Labor auditor visited the premises and reviewed some financial information, including the payroll records. The auditor concluded that the new operator assumed control of the premises immediately after the old operator left and continued to operate the motel, lounge, and restaurant. The auditor also determined that, based on the payroll records, the former operator’s employees were retained by the new company when it assumed control of the premises. As a result, the auditor concluded that, for the purposes of Unemployment Compensation Fund contributions, the new operator should be assigned the same employment experience rating as the old one. The Administrative Law Judge found that after the lease was terminated, the new operator took over the operation of the premises and the essential character and function of the premises did not change. The judge also noted that the new operator employed many of the old operator’s former employees. Based on those findings, the judge concluded that the Department properly transferred the employment experience from the old operator to the new one. The Appellate Division noted that its capacity to review administrative decisions was limited and that it would not engage in an independent assessment of the evidence as if it were a court of first instance. Its obligation is to “reverse the decision of the administrative agency only if it is arbitrary, capricious or unreasonable or [if] it is not supported by substantial credible evidence in the record as a whole.” Here, the new company was concerned because the higher the number of unemployment claims against an employer, the higher the annual contribution rate the employer must pay. Consequently, it did not want to bear the burden of the employment operating experience of the prior company. Before transferring the employment experience of a prior business to a new employer, the Department of Labor must determine that the new employer is a “successor in interest.” “The provisions in the statute are written in the disjunctive and become operative upon the transfer of the organization, trade or business, or the transfer of substantially all of the assets of an employer to a successor in interest. There is no requirement that assets be transferred. It is sufficient to demonstrate that there has been a transfer of the “organization, trade, or business.” Here, it was undisputed that when the current operator removed its predecessor from the motel and restaurant business, it continued a smaller motel operation a short while later, retaining a substantial percentage of the old employees. This retention of such a large number of the employees in substantially the same business was strong evidence that the employment experience of the predecessor should be considered indicative of the future employment experience of the new company. Even though the new company did not immediately utilize the restaurant and catering aspects of the old business, the Court was convinced that there were sufficient similarities to support the decision below.


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