In a case which is sure to complicate the sale of companies (or discrete divisions thereof) and have widespread influence in other Circuits, the Seventh Circuit recently held that a company which acquired the assets (not stock) of another company at a receivership auction was liable for violations of the FLSA which occurred before the acquiring company purchased the assets. The Seventh Circuit reached this conclusion in spite of auction conditions that the assets were purchased “free and clear” of all liabilities generally, and specifically stipulated that the purchase was free of any liabilities arising out of the FLSA litigation pending against the predecessor company. Teed, et. al., v. Thomas & Betts Power Solutions, LLC, March 26, 2013, Seventh Circuit Court of Appeals, Posner, R.).
At the outset, Judge Posner, writing for the Seventh Circuit panel, acknowledged that the majority rule followed by most states – including in Wisconsin, the state whose law would otherwise apply in this case – would shield a purchaser of a company’s assets from successor liability in the absence of an express assumption of the seller’s existing liabilities. But, Posner noted, a more employee-friendly federal common law standard of successor liability has often been applied which trumps the majority state law rule “when liability is based on a violation of a federal statute relating to labor relations or employment,” such as the NLRA, ADEA, Title VII, or FMLA. This federal standard has been applied even when the asset purchase is subject to a disclaimer of successor liability.
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