On March 26, 2013, the Seventh Circuit Court of Appeals
held in Teed et al., v. Thomas & Betts Power Solutions that a corporation that purchased
another corporation's assets at a receiver's auction was required to satisfy a
$500,000 settlement reached between the predecessor company and its employees
for wage violations.
Generally, absent some exceptions, when a business purchases the assets of
another, the purchaser does not also have to satisfy the other company's
liabilities. That is supposed to be the point of structuring the transaction as
an asset purchase in the first place. When there is liability based on a
violation of a federal statute relating to labor relations, however, "a
federal common law standard of successor liability is applied," even when
the terms in the purchase said it was "free and clear of all
liabilities." That language is not a defense in the face of federal law,
which applies when the successor (purchaser) had notice of the pending claim,
when the predecessor is unable to provide relief but the successor is able to,
and when there is continuity between the operations and work force of the
predecessor and successor.
The court reasoned that the imposition of successor liability is appropriate to
enforce federal labor or employment laws and to achieve federal statutory
goals, because workers are often unable to "head off a corporate sell by
their employer aimed at extinguishing the employer's liability to them."
Asset purchases and sales in receivership don't come up every day, but
businesses contemplating transactions like this should go into the transaction
with eyes wide open.
If you feel like you can't live without reading this case (which happily
follows the rule that the more complex the case, the simpler the writing should
be), follow this
link [an enhanced version of this opinion is available to lexis.com
subscribers]. At a minimum, send it along to any transactional
lawyers if you are contemplating an asset purchase.
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by Barran Liebman attorneys.
Electronic Alerts are written by Barran Liebman attorneys
for their clients and friends. Alerts are not intended as legal advice, but as
employment law, labor law, and employee benefits announcements. Copyright ©
2013 by Barran Liebman LLP.
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