The Teed v. Thomas & Betts Power Solutions, LLC decision determined that, where one company seeks to acquire the assets of another, a simple disclaimer of liability for pending claims will not be sufficient. Thus, a company cannot escape liability for employment claims against it by selling off its assets.
This article by TELG principal Tom Harrington and TELG managing principal R. Scott Oswald was published by The Corporate Counselor on March 1, 2014. The full article is available as a PDF on our site.
Acquiring More Than Just Assets: The Impact of Teed v. Thomas & Betts Power Solutions, LLC
In March 2013, the Seventh Circuit Court of Appeals, in an opinion written by Judge Richard A. Posner, decided the case of Teed v. Thomas & Betts Power Solutions, LLC, 711 F.3d 763, 764 (7th Cir. 2013). In a win for employees, the court held that the more plaintiff-friendly federal common law test is appropriate in determining whether an acquiring company assumes the liabilities associated with pending litigation under the Fair Labor Standards Act (FLSA).
The implications of the ruling are clear: Where one company seeks to acquire the assets of another, a simple disclaimer of liability will not be sufficient. Due diligence requires that the successor company closely examine any pending employment-related litigation of the seller and determine how a particular sale implicates the successor liability test under the federal common law.
In addition, and as is relevant to plaintiffs bringing claims under the FLSA, a company cannot escape liability simply by selling off its assets. The violator will pay for its infractions through a reduced sale price and a plaintiff, if successful in proving his cases, will receive compensation for the violations.