Acquisition of a private entity by a public employer

Acquisition of a private entity by a public employer
Neron v NYC Health and Hospitals Corp., Supreme Court [Not selected for publication in the Official Reports]

In January 1998, New York State Supreme Court Justice Shainswit considered a personnel issue that is rarely litigated -- the status of individuals who work for a private employer having a contract with a public entity to provide certain services and later become employees of that public entity.

About 125 hospital technicians working at the New York City's Jacobi Medical Center, a municipal hospital, sued their employer, the New York City Health and Hospitals Corporation (HHC), claiming that they were entitled to (1) permanent competitive status without first having to take and pass a competitive examination for their respective positions and (2) seniority "theretofore held by them as among themselves." The technicians argued that HHC's failure to provide for this was arbitrary, capricious, and an abuse of discretion, citing Section 7390 of the Unconsolidated Laws and Section 45 of the Civil Service Law as authority for this claim. As to the events leading to this lawsuit:

1. Initially HHC entered into an "Affiliation Agreement" with Albert Einstein College of Medicine under which Einstein supplied Jacobi with doctors and non-physician technical personnel.

2. In November 1991, Coney Island Medical Group ("CIMG") assumed the Einstein/Jacobi affiliation agreement and became the employer of Jacobi's non-physician technical staff under a Jacobi-CIMG affiliation agreement.

3. In September 1996, the Jacobi-CIMG affiliation agreement expired and HHC offered "civil service employment" to all non-physician technical staff who had been employed under the now expired affiliation agreement.

This resulted in HHC provisionally appointing about 106 individuals previously serving under the Jacobi-CIMG agreement to positions in the competitive class; the remaining individuals were placed in exempt class or non-competitive class positions.

The technicians pointed to Unconsolidated Laws Section 7390.2, which in relevant part provides that "employees of the voluntary hospitals and medical schools be continued in the employment of HHC without competitive examination, and shall be afforded permanent competitive status." They also claim that HHC violated Section 45.1 of the Civil Service Law, which deals with the takeover of a private employer by a public employer.

HHC, on the other hand, urged the Court to rule that Section 7390, enacted in 1973, did not require it to grant the 106 technicians permanent competitive status without such individuals first taking and passing a competitive examination because Section 7390 was intended to have limited application as it related to a specific, immediate, but [then] temporary concern. The Corporation also argued Section 45 was inapplicable because there was no acquisition of a private institution by a government agency.

The Court rejected HHC's contention that Section 7390 did not apply in this instance, finding that "it expressly applies to situations where HHC assumes the employment of individuals who previously provided medical services for HHC as employees of the voluntary hospitals and medical schools in the municipal hospitals of the City of New York." The Court noted that nothing in Section 7390 indicates that it was intended to apply only to the situation faced by HHC in 1973 and ceased to be in force thereafter.

Justice Shainswit explained his ruling by indicating that "to require that competitive examinations be given to any of the former employees of the voluntary hospitals and medical schools now performing such services would seriously interrupt the administration of health and medical services necessary for the general welfare of the people of the City and would thus be impracticable."

HHC, however, fared better with its arguments concerning the applicability of Section 45 in this situation. Why? Because, as the Court noted, there was no showing that functions in contrast to the mere assumption of employees' services, was involved and thus there was no acquisition of a private entity within the meaning of Section 45.

The bottom line: HHC was ordered to give permanent competitive appointments without competitive examination to the 106 technicians qualified for such an appointment.

"Contracting-out" for services may have unanticipated consequences. For example, EEOC, reacting to the increase in the use of a "contingent workforce," including temporary and contract employees, by employers, has concluded that "if both the staffing firm and its client have the right to control the worker, both can be liable for civil rights violations."
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