Client Alert Employment
Pillsbury Winthrop Shaw Pittman LLP www.pillsburylaw.com | 1
April 11, 2013
7th Circuit Holds Successor Liable for FLSA
Claims, Despite Buyer’s Disclaimer
By Paula M. Weber, Alexander Parachini, Leo T. Crowley and Thomas N. Makris
In Teed v. Thomas & Betts Power Solutions, LLC, the 7th Circuit in an opinion
written by Judge Posner held that, absent a good reason to withhold liability, a
purchaser of assets was subject to successor liability for Fair Labor Standards
Act (“FLSA”) claims and other federal labor and employment laws, even if the
successor disclaimed liability when it acquired the assets.
Facts
Plaintiffs filed collective actions for overtime pay under the FLSA. The original defendant was JT Packard
& Associates (“Packard”). Packard guaranteed a loan by its parent company. When the parent company
defaulted, Packard’s assets were placed in a receivership and auctioned off, with the proceeds going to
the bank. Thomas & Betts Corporation bought Packard’s assets and placed them in a wholly owned
subsidiary, Thomas & Betts Power Solutions, LLC (“Thomas & Betts”). Over Thomas & Betts’ objection,
plaintiffs were allowed to substitute Thomas & Betts for the original defendants. Eventually, a judgment of
$500,000 was entered against Thomas & Betts in this matter for FLSA violations that occurred when
Packard owned the assets.
When Thomas & Betts purchased the assets of Packard, it knew of the pending FLSA lawsuit. One
condition specified in the transfer of assets to Thomas & Betts was that the transfer be “free and clear of all
Liabilities” and that Thomas & Betts would not assume any liabilities Packard might incur in the FLSA
litigation. After the transfer, Thomas & Betts continued to operate Packard much as the previous owner
had done and indeed offered employment to most of Packard’s employees.
Application of Federal Common Law Standard of Successor Liability
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. Most states limit successor liability, in an asset sale, to sales in
which a buyer (the successor) expressly or implicitly assumes the liability. In Teed, Wisconsin state law
applied to underlying claims based on state law, and Wisconsin follows this general rule. Thus, if
Wisconsin state law governed the issue of successor liability, Thomas & Betts could not be held liable.
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