Employment-Seventh Circuit Rules That Liability For Overtime Pay Under the FLSA Is Transferred To Buyer In An Asset Sale

In Teed v. Thomas & Betts Power Solutions, L.C.C., Nos. 12-2440, 12-3029 (7th Cir. 2013), the defendant was Thomas & Betts Power Solutions, L.C.C. (“Thomas & Betts”). Its parent company, the Thomas & Betts Corporation, had bought the assets of the plaintiff’s employer, and placed them in Thomas & Betts. Due to such activity, the plaintiffs brought this suit, seeking damages for the employer’s alleged violations of their rights under the Fair Labor Standards Act (the “FSLA”). The question for the Seventh Circuit Court of Appeals (the “Court”): whether Thomas & Betts may be held liable, by virtue of the doctrine of successor liability, for the damages owed the plaintiffs under the FLSA.

In analyzing this question, this Court said that, when a company is sold in an asset sale as opposed to a stock sale, the buyer acquires the company’s assets but not necessarily its liabilities; whether or not it acquires them is the issue of successor liability. Most states limit such liability, with exceptions irrelevant to this case, to sales in which a buyer (the successor) expressly or implicitly assumes the seller’s liabilities. Wisconsin, the state whose law would apply if the underlying claim were based on state law, is such a state. But when liability is based on a violation of a federal statute relating to labor relations or employment, a federal common law standard of successor liability is applied that is more favorable to plaintiffs than most state-law standards to which the court might otherwise look. What happens, then, when the alleged liability is based on the FLSA.

The Court concluded that the successor liability rules transfer damages under the FLSA to the buyer in an asset sale. This obtains, the Court said, because successor liability is appropriate in suits to enforce federal labor or employment laws–even when, as here, the successor disclaimed liability when it acquired the assets in question–unless there are good reasons to withhold such liability. Lack of notice of potential liability or insolvency of the original employer are examples of such reasons. But there were no such reasons that factored into the instant case. As such, the Court ruled that Thomas & Betts may be held liability for the damages owed to the plaintiffs under the FLSA.