Teed v. Thomas & Betts Power Solutions, LLC (7th Cir. 2013) held that a buyer of a company’s assets can’t rely on state law to keep a seller’s violations of the Fair Labor Standards Act (FLSA) from transferring to the buyer of the Seller company’s assets. This standard has been previously applied to the LMRA, NLRA, Title VII, ADEA, and FMLA.
The Seventh Circuit explained that federal labor law claims are governed by federal common law, not state law. Further, the court explained that employees do not have the power to stop an owner from selling the company. Therefore, the buyer (successor) is stuck with the seller’s (prior owner) liability regardless of what the contract states.
To determine whether successor liability will apply, the Seventh Circuit considered the following multi-part balancing test:
- Whether the successor had notice of the pending law suit;
- Whether the predecessor would have been able to provide the relief sought in the lawsuit before the sale;
- Whether the predecessor could have provided relief after the sale;
- Whether the successor can provide the relief sought in the suit (if not successor liability is a phantom); and
- Whether there is continuity between the operations and work force of the predecessor and the successor – which favors successor liability because nothing really has changed.