Employment- Ninth Circuit Rules That New Employer Is Not A Successor In Interest For Purposes Of FMLA

In Sullivan v. Dollar Tree Stores, Inc., No. 08-35413 (9th Cir. 2010), the Court faced the question of whether a new employer is a “successor in interest” to a former employer, for purposes of determining whether an employee has worked for a particular employer for at least 12 months and is thus entitled to the protections of the Family and Medical Leave Act of 1993 (the “FMLA”).

In this case, the Plaintiff had been a store manager at Factory 2-U, a clothing store, selling clothes at a range of prices. Factory 2-U filed for Chapter 11bankruptcy. The bankruptcy court approved the sale of Factory 2-U’s existing leasehold on the store at which plaintiff worked (the “Old Store”) to Dollar Tree Stores, Inc. (“Dollar Tree”). Dollar Tree operates stores that sell a large variety of merchandise for $1 per item. Other than the leasehold, Dollar Tree purchased no inventory or any asset of Factory 2-U. The Old Store then closed its doors, and, after four weeks of substantial renovation, preparation and staff training, Dollar Tree opened a new store at the same location (the “New Store”). Dollar Tree hired the plaintiff as an assistant manager of the New Store. The plaintiff’s employment at the Old Store and the New Store was continuous. Following a dispute about taking leave to care for her mother, and before completing 12 months of employment with Dollar Tree, the plaintiff was fired by Dollar Tree. She was later rehired by Dollar Tree, but then quit several months later. Plaintiff filed this suit in federal court under the FMLA seeking lost wages.

In determining whether the plaintiff is entitled to FMLA protection, the Court said that the FMLA entitles an eligible employee to take family or medical leave for several enumerated reasons, including to care for a close relative. The term “eligible employee” means an employee who has been employed for at least 12 months by the employer with respect to whom leave is requested. Under the statute, the term “employer” specifically includes any successor in interest of an employer. The plaintiff worked for Dollar Tree for less than 12 months. The question here is whether Dollar Tree is a successor in interest to Factory 2-U, so that the plaintiff’s employment with Factory 2-U will count towards the 12-month employment requirement for FMLA entitlements.

Under Department of Labor (“DOL”) regulations, the determination of whether an employer is a “successor in interest” for FMLA purposes is based on the factors used under Title VII of the Civil Rights Act and the Vietnam Era Veterans’ Adjustment Act. These factors include: (1) substantial continuity of the same business operations; (2) use of the same plant; (3) continuity of the work force; (4) similarity of jobs and working conditions; (5) similarity of supervisory personnel;
(6) similarity in machinery, equipment, and production methods; (7) similarity of products or services; and (8) the ability of the predecessor to provide relief. The totality of the circumstances is considered.

In this case, Dollar Tree’s business is substantially different from Factory 2-U’s business. Dollar Tree had purchased a lease on the building for the New Store, but nothing else from Factory 2-U. Dollar Tree did not acquire any of Factory 2-U’s merchandise. Dollar Tree sells a wide variety of merchandise whereas Factory 2-U sold clothing only. Dollar Tree sells items for $1 only, whereas Factory 2-U sold clothing at many different prices. There was a break in operations, as Old Store was closed to the public for almost a month for preparation and staff training. There was no similarity of supervisory personnel or continuity of workforce, since the New Store had a new store manager, and only the plaintiff and one other individual, from a large pool of Old Store employees, had worked at both the Old Store and the New Store. The predecessor, Factory 2-U, is not in any position to provide any relief to the plaintiff. Based on the application of the factors in the DOL regulations, the Court concluded that Dollar Store is not a successor in interest to Factory 2-U, so that the plaintiff does not meet the 12-month employment requirement as to Dollar Tree, and therefore is not entitled to any protection under the FMLA.