Successor Liability Found for FLSA Overtime Claim After Asset Purchase

In March 2013, the Seventh Circuit held in Teed, et. al. v. Thomas & Betts Power Solutions, L.L.C, that a buyer of a prior company’s assets could be liable for FLSA overtime claims asserted against the predecessor.  A company seeking to assume another business commonly will “buy the assets” of a defunct or insolvent company in order to avoid the debts and liabilities associated with the operation of the previous business.   An asset purchase therefore is different than a stock purchase or merger where the purchasing company obtains the entire underlying entity, which would include an assumption of all debts and liabilities.  As affirmed by the Court, successor liability is not absolute, but based upon multiple factors of consideration.  Applying the Federal standard for successor liability from other Federal employment matters, the Court evaluated and weight the following elements:

(1) Whether the successor had notice of the pending lawsuit when it bought the predecessor’s assets;.

(2) Whether the predecessor would have been able to provide the relief sought in the lawsuit
before the sale;

(3) Whether the predecessor could have provided relief after the sale;

(4) Whether the successor can provide the relief sought in the suit; and

(5) Whether there is continuity between the operations and work force of the predecessor and the successor.

When the bulk of these consideration favor the plaintiff, a Court may impose successor liability under the FLSA, even though the purchasing company expressly bargained to avoid the debts and liabilities of the predecessor company.