Companies purchasing the assets of another business should be mindful they may become responsible for the seller’s employment liabilities under a successor liability theory, irrespective of an exclusion of such liabilities under the purchase agreement. This month’s column examines recent cases addressing successor employer liability under several federal employment statutes, including the Fair Labor Standards Act (FLSA), the Employee Retirement Income and Security Act (ERISA) and the Family and Medical Leave Act (FMLA).
Applicable Tests
When corporate ownership is transferred in a stock sale or merger, the successor corporation is generally liable for the acts of its predecessor. On the other hand, under most state laws and traditional common law, a company that purchases the assets of another company is generally not liable for the seller’s liabilities unless the purchaser expressly or impliedly assumed the predecessor’s liability, the transaction amounted to a de facto merger, the purchasing corporation is a mere continuation of the seller or the asset transfer was for the fraudulent purpose of escaping liability for unpaid debts. Golden State Bottling v. NLRB, 414 U.S. 168, 182 n5 (1973).
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