If a Maine plant changes hands and then closes, does severance pay cover years the employee worked under previous owners?

Plain-English summary

Maine has a "plant closing" severance pay statute, 26 M.R.S.A. § 625-B, enacted in 1971 and rewritten in 1973 to help workers and communities absorb the shock when a large employer relocates or shuts down. The basic obligation is one week's pay for each year of an eligible employee's service at the establishment that closes.

The Director of the Bureau of Labor Standards asked the AG how to handle a fact pattern that the prior cases had only partly resolved. Suppose an employer has owned a covered establishment for more than three years, but an individual employee has worked there for longer than the current employer has owned the place. Does the severance calculation cover the employee's full tenure (including years served under previous owners), or only the years served under the current employer?

Attorney General G. Steven Rowe concluded: the full tenure. The plain language of § 625-B(2) bases the calculation on "each year of employment by the employee in that establishment," not by that employer. The Law Court had already made the same distinction (employer vs. establishment) in Director of Bureau of Labor Standards v. Diamond Brands, just from the other direction, in a 1991 case rejecting the Bureau's attempt to charge an employer who had owned a facility less than three years for the full tenure of long-time employees. The 1975 amendment that changed the three-year exception's language from "at said establishment" to "by said employer" was specifically designed to give a buyer of a financially distressed business a three-year window to attempt a turnaround. That three-year window is the only place where the identity of the employer matters. Everywhere else, the statute looks to the establishment.

The AG also pointed to the trial court's reasoning in Director v. Fort Halifax Packing Co., which had explicitly held that an acquiring employer was liable for severance pay tied to service that preceded its acquisition of the plant. Fort Halifax's other arguments went to the Law Court and then to the U.S. Supreme Court (which upheld the statute against ERISA preemption), but the question of how to measure the years was decided at the Superior Court level and remained good guidance.

The AG closed by noting an important practical point: an asset purchase that disclaims successor liability under common-law principles does not change the result, because the severance pay statute is sufficiently clear that it modifies the common-law rule. "An acquiring employer takes ownership subject to the terms of the severance pay law."

Currency note

This opinion was issued in 2001. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

What is a "covered establishment" under § 625-B?

An industrial or commercial facility (or part of one) that employs, or has employed at any time in the preceding 12-month period, 100 or more persons. 26 M.R.S.A. § 625-B(1)(A).

What triggers the severance pay obligation?

Either relocation or termination of a covered establishment. The statute defines those terms; this opinion assumed the trigger was satisfied and addressed only how to measure the resulting pay.

What are the "mitigating factors" that can defeat the severance pay obligation?

§ 625-B(3) lists four: relocation or termination because of a physical calamity; the employee is covered by an express severance pay contract that meets or exceeds the statutory rate; the employee accepts employment at the new location; or the employee has been employed by the employer for less than three years.

Why does the three-year exception focus on "by the employer" rather than "at the establishment"?

That language was changed by the 1975 amendments to give a potential buyer of a financially distressed business breathing room. A purchaser who tries to revive a struggling facility but cannot make it work within three years is shielded from severance liability for the new hires they brought in. The Legislature did not, however, intend the three-year window to wipe out severance liability for long-tenured employees of the predecessor.

Does it matter how the acquisition was structured (asset purchase vs. stock purchase)?

The AG specifically addressed asset purchases that disclaim successor liability. § 625-B modifies the common-law successor-liability rule, so an acquiring employer cannot contract around the obligation just by structuring the deal as an asset purchase. The statutory purpose of protecting displaced workers controls.

What if the establishment changes hands twice?

The plain language extends back through all prior owners, with the only cap being the three-year mitigation in § 625-B(3)(D) (for employees with less than three years of service with the current employer) and the limit of the employee's own tenure.

Background and statutory framework

The modern severance pay obligation took its current shape in 1971 and was substantially amended in 1973 and 1975. The 1971 statement of fact (L.D. 424) described the purpose as alleviating the "economic dislocation that accompanied closing of large establishments." The Law Court's repeat usage of that purpose, particularly in State v. L.V.I. Group and Fort Halifax, was the AG's interpretive starting point.

Diamond Brands' textual analysis of the 1973-to-1975 amendments was the AG's strongest authority. The Law Court there focused on the very textual change (employer vs. establishment) that the AG used here in the opposite direction: when measuring the carve-out, the statute uses "employer"; when measuring liability, the statute uses "establishment." That asymmetry was deliberate and tracks the AG's reading.

Citations

• 26 M.R.S.A. § 625-B(1)(A) (definition of "covered establishment")
• 26 M.R.S.A. § 625-B(2) (severance pay calculation: one week per year of employment in that establishment)
• 26 M.R.S.A. § 625-B(3)(D) (three-year-by-employer exception)
• State v. L.V.I. Group, 1997 ME 25, ¶ 12, 690 A.2d 960, 965
• Director of Bureau of Labor Standards v. Fort Halifax Packing Co., 510 A.2d 1054 (Me. 1986), aff'd 482 U.S. 1 (1987)
• Director of Bureau of Labor Standards v. Diamond Brands, Inc., 588 A.2d 734 (Me. 1991)
• State v. Edward C., 531 A.2d 672 (Me. 1987) (statutory construction)
• P.L. 1973, ch. 545; P.L. 1975, ch. 512 (amendments to § 625-B exception)

Source

• Landing page: https://www.maine.gov/legis/lawlib/lldl/agops/agops.htm
• Original PDF: https://lldc.mainelegislature.org/Open/AG/Opinions/2001/ag_20010801.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

01-91

STATE OF MAINE
DEPARTMENT OF THE ATTORNEY GENERAL
6 State House Station
Augusta, Maine 04333-0006

G. Steven Rowe
Attorney General

August 1, 2001

Michael V. Frett, Director
Bureau of Labor Standards
45 State House Station
Augusta, ME 04333-0045

Dear Director Frett:

You have asked our opinion as to the severance pay liability of an employer who has owned a covered establishment for more than three years to employees who were employed at that establishment for a period that is longer than the period of that employer's ownership of the establishment. This appears to be the first time that this Office has been asked to render a formal opinion on this issue. For the reasons set forth below, it is the opinion of this Office that the severance pay liability of the employer that has owned a covered establishment for more than three years is one week's pay for each year the employee has worked in that establishment, regardless of any change(s) in ownership of the establishment during an employee's period of service.

The Maine severance pay statute, 26 M.R.S.A. § 625-B (1988 & Supp. 2000), "was enacted to address the 'economic recession that invariably results in a community where a large number of people simultaneously lose their jobs' and to 'alleviate the adverse economic impact upon the employees and the community in which they live.'" State v. L.V.I. Group, 1997 ME 25, ¶ 12, n. 5, 690 A.2d 960, 965 (quoting L.D. 424, Statement of Fact (105th Legis. 1971)). It is "[d]esigned to protect Maine citizens from the economic dislocation that accompanied closing of large establishments." Director of Bureau of Labor Standards v. Fort Halifax Packing Co., 510 A.2d 1054, 1066 (Me. 1986), aff'd 482 U.S. 1 (1987) (citations omitted). With this background, we begin our analysis of your question with the language of the statute, which defines an employer's liability for severance pay as follows:

Any employer who relocates or terminates a covered establishment shall be liable to his employees for severance pay at the rate of one week's pay for each year of employment by the employee in that establishment.

26 M.R.S.A. § 625-B(2) (1988) (emphasis added). The statutory definition of "covered establishment" reads as follows:

A. "Covered establishment" means any industrial or commercial facility or part thereof which employs or has employed at any time in the preceding 12-month period 100 or more persons.

26 M.R.S.A. § 625-B(1)(A) (1988 & Supp. 2000).

"The 'fundamental rule' in statutory construction is that the legislative intent as divined from the statutory language controls the interpretation of the statute." State v. Edward C., 531 A.2d 672, 673 (Me. 1987). "Unless a statute as a whole discloses a contrary intention, unambiguous language should be afforded its plain meaning." Director of Bureau of Labor Standards v. Diamond Brands, Inc., 588 A.2d 734, 736 (Me. 1991) (citations omitted). The language of the statute requires an employer to calculate severance pay owed to an employee based on that employee's years of work in that establishment, without regard to the number of owners of that establishment for whom the employee ultimately worked. For example, if an employer who is terminating a covered establishment has owned that establishment for twenty years and has an employee who worked in that establishment for those twenty years as well as an additional five years for a previous owner(s), the employer would be liable to that employee for 25 weeks of severance pay.

The length of time an establishment is owned by a particular employer is relevant to severance pay liability in one important respect. Section 625-B(3) provides certain exceptions to the severance pay obligation, often referred to as "mitigating factors," including an exception for any employee who "has been employed by the employer for less than 3 years." 26 M.R.S.A. § 625-B(3)(D) (1988 & Supp. 2000). This exception could apply in one of two ways: first, the employer may have owned the facility for less than three years at the time of termination or relocation; or, alternatively, an individual employee may have less than three years of service with an employer who owes severance pay to other employees.

It might be argued that the language in this exception supports a reading of the statute as a whole that limits an employer's severance pay liability to the period of that employer's ownership of the facility in question. However, while the exception in § 625-B(3)(D) focuses on length of service with the employer, the language defining liability for severance pay focuses on the employee's length of service in the establishment. The policy served by the exception, that of encouraging potential buyers of a financially distressed company, is served by affording them a three year window to determine whether a business can be made to be profitable enough to continue it. Limiting the window to three years represents a balancing of such an interest with the primary purpose of the statute, which is to ease the financial impact on employees and their communities when a business closes.

Maine's Law Court has not decided the precise question we discuss in this opinion. However, the Court has addressed the distinction between "employer" and "establishment" in a slightly different context in section 625-B. The Court's reasoning in Director of the Bureau of Labor Standards v. Diamond Brands, 588 A.2d 734 (Me. 1991), directly supports the plain language interpretation of the statute we have outlined above. In the Diamond Brands case, the Bureau of Labor Standards sought to enforce an interpretation of the exception in 26 M.R.S.A. § 625-B(3)(D) that would make employees who worked in the same facility for more than three years eligible for severance pay despite the fact that the facility had been owned by the employer for less than three years. The Law Court rejected the Bureau's interpretation, based on the distinction between "employer" and "establishment."

The three year ownership exception as worded in a 1973 amendment to the severance pay law provided that no liability would be imposed on an employer if the employee had been "employed for less than 5 years at said establishment." P.L. 1973, ch. 545 (emphasis added). In 1975, however, this paragraph was further amended to preclude liability in the case where an employee had been "employed by said employer for less than 3 years." P.L. 1975, ch. 512 (emphasis added). In determining that this section could not be read to impose severance pay liability on an employer based on the employee's length of employment at the facility, the Law Court focused on the statutory change from "at said establishment" to "by said employer."

The reference to establishment in the exemption provision ties liability to the period of time served by the employee at a particular site, rather than to the identity of the employer. Under this version of the statute [1973], successor corporations, including Diamond Brands, would have been liable for severance pay, regardless of the length of time between the purchase of the corporate assets and the date of the plant closure, and regardless of the number of predecessors in interest in their chain of title.

Diamond Brands, 588 A.2d at 737 (emphasis added).

Similarly, in Director of the Bureau of Labor Standards v. Fort Halifax Packing Co., No. CV-81-516/515 (Me. Sup. Ct., Kenn. Cty., May 2, 1985) aff'd on other grounds 510 A.2d 1054 (Me. 1986), aff'd on other grounds 482 U.S. 1 (1987), the Maine Superior Court addressed the question, "who among Fort Halifax's former employees is entitled to severance pay and the amount thereof." Central to Fort Halifax's argument was that if it was liable for severance pay, it should only be liable for "the years after 1975 when the severance pay statute achieved what is essentially its present form"; and, in any event, it should not be liable for severance pay for the years worked by the employees at the establishment prior to 1972, the year in which Fort Halifax purchased the establishment. In rejecting this argument, the Court stated:

Finally, with respect to all employees . . . [t]he important time period in the statute is the number of years the employee worked at a "covered establishment" before termination. Although this time period may extend back beyond the 1975 amendment and although defendant will be liable to employees for years the employees worked at the "covered establishment" before defendant acquired the Winslow plant, this result is perfectly consistent with the purpose of the statute.

These cases confirm the unambiguous language of the statute. Because the severance pay calculation is based on "each year of employment by the employee in that establishment," any employer terminating or relocating a covered establishment who does not qualify for one of the mitigating factors must calculate severance pay based on the employee's actual years of work in the establishment.

Please let me know if we can be of any further assistance.

Sincerely,

G. Steven Rowe
Attorney General