Federal Appeals Court Holds That Federal Labor Laws are Enforced Against Successor Corporation; Teed, et al. v. Thomas & Betts

When a company is acquired in an asset sale, successor liability applies for pending claims under the Fair Labor Standards Act, even if the acquiring company disclaims liability for such claims. 

The Seventh U.S. Circuit Court of Appeals in Chicago affirmed the decision by a district court judge in a case involving the asset sale of JT Packard & Associates.  Packard provided maintenance in emergency technical services for equipment designed to protect computers and electrical devices from being damaged by power outages. 

In 2006, Packard’s stock was sold to S.R. Bray Corp.  In 2008, several workers sued Packard for violations of the Fair Labor Standards Act (FLSA).

After the FLSA lawsuit was filed, Bray defaulted on a $60 million loan that had been guaranteed by Packard.  To pay the debt, Bray assigned its assets, including its stock in Packard, to a bank.  At an auction, Thomas & Betts Corp. was the high bidder.

One of the conditions of the transfer of the Bray assets was that Thomas & Betts be free and clear of all liabilities that the buyer had not assumed.

In addition, Thomas & Betts negotiated that it would not assume any of the liabilities that Packard might incur in the FLSA litigation.  After the transaction was completed, Thomas & Betts continued to operate Packard under its own name and employed many of Packard’s employees.

The district judge in the FLSA case allowed the plaintiffs, the employees, to substitute Thomas & Betts as the defendant for Packard.  After the substitution, the district court entered a judgment for $500,000 in damages against Thomas & Betts.  Thomas & Betts’ appeal objected to the substitution.

The appellate court rejected Thomas & Betts’ arguments.  It found that the successor liability was appropriate in suits to enforce federal labor employment laws, even if the successor disclaimed liability when it acquired the assets in question.

The appeals court reasoned that the law regarding this extinguished liability should not apply to workers because it could not head off a corporate sale by a company designed to cut off its liability.

Thomas & Betts further argued that it was not an “employer” under the FLSA and therefore, could not be subject to liability. 

However, the appellate court rejected that argument finding that a similar situation arises under Title VII litigation, where successor liability is required by case law.

The court said no exception was applicable in this case.  For those reasons, the district court’s findings were affirmed.

Brian Teed, et al. v. Thomas & Betts Power Solutions, LLC, 12-2440, 12-3029 (March 26, 2013)

Kreisman Law Offices has been representing individuals and businesses for more than 37 years in and around Chicago, Cook County and its surrounding areas, including Buffalo Grove, Wheeling, Prospect Heights, Chicago (North Park), Mount Prospect, Itasca, Rolling Meadows, Bolingbrook, Romeoville, Oakbrook, Oak Park and Midlothian, Ill.

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