A successor employer could not escape paying a $500,000 damages award for the previous owner’s Fair Labor Standards Act violations. The case, Teed et al. v. Thomas & Betts Power Solutions LLC, Nos. 12-2440, 12-3029 (7th Cir. March 26, 2013), involved a tricky analysis of whether the purchaser of a business could be held responsible for the FLSA violations of the previous owners. In upholding the award, the 7th U.S. Circuit Court of Appeals court found that successor owners could be held responsible because: (1) federal law requires an analysis that protects employee interests and supersedes any contractual waiver of liability; and (2) the $500,000 liability in this case was relatively modest and could have been discounted from the purchase price.
The original defendants defaulted on a $60 million secured loan. To pay as much of the debt to the bank as possible, they assigned their assets to a bank affiliate that auctioned off the assets. Thomas & Betts won that auction, and the assets were transferred under a contract as “free and clear of all liabilities,” particularly noting that Thomas & Betts would not assume any FLSA liabilities.
However, the district court disregarded the contract provision, and found that Thomas & Betts was responsible for a final judgment of around $500,000 in damages, attorney’s fees and costs, under a settlement agreement that was conditional on the outcome of Thomas & Betts’ appeal to the 7th Circuit.
Thus, the 7th Circuit needed to decide whether Thomas & Betts was liable under successor liability for whatever damages were owed the plaintiffs as a result of Packard’s violations. When liability is based on a violation of a federal statute relating to labor relations or employment, federal law requires a more employee-favorable standard. In particular, a disclaimer of successor liability is not a defense.
To continue reading about the 7th Circuit’s opinion, click here. For more information, go to Fair Labor Standards for Private Employers.