New York Labor Department Says Shuttered Hospital Owes Workers $50 Million

November 11, 2010

St. Vincent’s Hospital could be on the hook for a $50 million payout to its former workers.

The New York state Department of Labor is pursuing a $50 million claim against St. Vincent’s Hospital for violating a state labor law governing mass layoffs when it closed abruptly in April of this year.

If the labor department succeeds, former workers at the shuttered Greenwich Village hospital could expect a much-welcomed payout. The money would go toward 60 days worth of back pay and benefits for the hospital workers who lost their jobs.

But lawyers for the hospital are putting up a fierce fight against the labor department. At issue is $48.8 million allegedly owed under the New York State Worker Adjustment and Retraining Notification Act. The WARN law, fashioned after a similar federal law, was enacted in New York in February 2009. It requires employers to give 90 days’ notice to workers before a mass layoff.

Lawyers for St. Vincent’s argue that New York state was a partner in the closure, as the hospital worked closely with the Department of Health and the governor’s office. Gov. David Paterson convened a task force to try to save the hospital and also authorized state loans. But once it was clear St. Vincent’s couldn’t be saved, say its lawyers, all the steps taken to close down departments and transfer services to other hospitals were closely coordinated with state regulatory authorities.

“Notwithstanding the intimate involvement of the [health department] and other New York state agencies in the closure process, another New York state agency, the [labor department], has asserted that the debtors did not provide the terminated employees with 90 days’ notice of their terminations,” St. Vincent’s lawyers argue in a court paper filed last week.

The law firm for St. Vincent’s, Kramer Levin Naftalis & Frankel, also argues that if the labor department’s WARN claim is permitted by the bankruptcy court, it would “derail” efforts by St. Vincent Catholic Medical Centers to liquidate its operations “for the benefit of thousands of creditors and patients, likely either rendering the estates administratively insolvent or depriving general unsecured creditors of any recovery.”

St. Vincent’s is staking its legal defense on the premise that, in April, its plan was to liquidate, not reorganize. It therefore doesn’t meet the definition of a “business enterprise” or an “employer” subject to a WARN notice, argue its attorneys. The fairly new state WARN Act, which has not been tested in New York courts, also does not define a “business enterprise,” they add.

St. Vincent’s also urged the bankruptcy court judge to reject the labor department’s claim because hospital trustees made the decision to close St. Vincent’s on April 6 and filed for bankruptcy on April 14, after spending months attempting to salvage St. Vincent’s. The hospital’s top management tried but failed to find a new hospital sponsor, leaving them with no choice but to close suddenly.

“They did not anticipate terminating these employees until shortly before” filing for bankruptcy, so “any failure to provide required notice to the debtors’ employees occurred in good faith,” the attorneys write.

The state WARN Act is meant as an early intervention that gives workers a safety net as they try to find new jobs or retraining services in advance of their job loss. Last year, the labor department received 400 WARN notices covering 41,000 workers, according to the department’s latest figures.

It issued only four notices of violations to companies, collecting $7,500 in penalties. Although 20 WARN investigations are under way, the St. Vincent’s violation is by far the largest potential penalty under the new state law.

“The WARN Act is an important law that was specifically intended to help workers deal with dislocation in the event of mass layoffs, which is certainly what occurred when St. Vincent's closed,” said a spokeswoman for 1199 SEIU United Healthcare Workers East, the union that represents most of the laid-off St. Vincent’s workers. “We support the [labor department’s] current stated position that the WARN Act was violated.”

On April 12, St. Vincent’s provided notice to some 2,780 employees that they would be laid off starting April 20. The labor department began investigating a WARN claim shortly thereafter, and filed a notice on Sept. 22. The state agency maintains its claim falls outside the jurisdiction of the bankruptcy.

A bankruptcy court hearing is scheduled for Nov. 18.  

Filed by Barbara Benson of Crain’s New York Business, a sister publication of Workforce Management. To comment, e-mail


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