Michael R. Lied

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Court Tags Asset Purchaser With Seller's FLSA Liability (Thursday, April 11, 2013)

Employees sued JT Packard & Associates, their employer, and Packard’s parent, S.R. Bray Corp. for liability under the Fair Labor Standards Act.

The district court allowed the plaintiffs to substitute Thomas & Betts Power Solutions, LLC, for the original defendants, after its parent, Thomas & Betts Corporation, bought Packard’s assets and placed them in a wholly owned subsidiary,

Thomas & Betts objected to being substituted, but its position was rejected by the district court.

On appeal, the court was called upon to decide whether Thomas & Betts was liable for damages owed the plaintiffs as a result of Packard’s alleged violations.

When a company is sold in an asset sale, the buyer acquires the company’s assets but not necessarily its liabilities.  In fact, most states limit such liability.

When liability is based on a violation of a federal statute relating to labor relations or employment, however, a federal standard of successor liability is typically applied.

The federal standard requires consideration of the following factors:  

  1. Whether the successor had notice of the pending lawsuit;  
  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.  

The reason for a different standard applicable to federal labor and employment statutes is that these statutes are intended either to encourage labor peace, or to protect employees’ rights.  In either case, imposition of successor liability may be necessary to achieve the statutory goals

The appeals court found no reason to reject successor liability.  Had Packard been sold before Bray got into trouble, imposition of successor liability would have been “unexceptionable”; Bray could have found a buyer for Packard willing to pay a good price even if the buyer had to assume the company’s FLSA liabilities.

Packard presented no good reason why its having been sold afterward ought to change the outcome.  The district court’s imposition of successor liability was affirmed.

Teed v. Thomas & Betts Power Solutions, L.L.C. 2013 WL 1197861 (7th Cir. 2013).

· Michael R. Lied
· Howard & Howard Attorneys PLLC
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· MLied@howardandhoward.com