So just what is a “Successor in Interest”?

Last time we talked about joint employers and you will remember that this occurs when two separate and distinct employers can be considered a single employer for purposes of the FMLA.  This time we are going to talk about when an employer is considered a successor of the prior employer for purposes of the FMLA.  This generally occurs when one company buys another company, to put it really simply.

And generally this is only an issue when one company buys the assets of the other company, not the stock.  Why is that?  Because if you buy the stock of a company, that company, which is a legal “person”, continues to exist and continues to employ its employees.  So it is not really a successor, it is simply the same company with new owners.  So let’s go back and look at the definitions:

Person means an individual, partnership, association, corporation, business trust, legal representative, or any organized group of persons, and includes a public agency for purposes of this part.

29 CFR §825.102.

See, a “person” under the FMLA includes a “corporation” and other business entities.

So what is this successor in interest thing and why is it important?  Well, often when you buy a business, you don’t actually buy the business – instead you buy the assets of the business.  Things like buildings and machines and customer lists and goodwill.  When that happens, that is where the successor in interest analysis comes in.

(c) When an employer is a successor in interest, employees’ entitlements are the same as if the employment by the predecessor and successor were continuous employment by a single employer. For example, the successor, whether or not it meets FMLA coverage criteria, must grant leave for eligible employees who had provided appropriate notice to the predecessor, or continue leave begun while employed by the predecessor, including maintenance of group health benefits during the leave and job restoration at the conclusion of the leave. A successor which meets FMLA’s coverage criteria must count periods of employment and hours of service with the predecessor for purposes of determining employee eligibility for FMLA leave.

29 CFR §825.107(c).

As you can see, this can be important.  If I start a brand new company from scratch and go right out and hire 50 employees, I am automatically a covered employer because I have 50 employees, but I don’t have any eligible employees because none of my employees have worked for me for a year nor have they worked 1,250 hours in the last 12 months.  I have not existed for 12 months. But if I buy the assets of a company and put those assets into a new company, even though it is a new company, that might not be the case.  As you can see, if I am a successor in interest I have to grant leave for eligible employees who had provided appropriate notice to the predecessor or continue leave that began while the employee was employed by the predecessor.  In other words, the employees get credit for the time worked for the predecessor when they come to work for me.

OK, so if I buy the assets of a company, am I automatically a successor in interest?  Well no, not necessarily.

First, there is no bright line test for when a successor in interest exits:

(b) A determination of whether or not a successor in interest exists is not determined by the application of any single criterion, but rather the entire circumstances are to be viewed in their totality.

29 CFR §825.107(b).

But there is some guidance about what the DOL will look at when determining if a buyer is a successor in interest.

(a) For purposes of FMLA, in determining whether an employer is covered because it is a ‘successor in interest’ to a covered employer, the factors used under Title VII of the Civil Rights Act and the Vietnam Era Veterans’ Adjustment Act will be considered. However, unlike Title VII, whether the successor has notice of the employee’s claim is not a consideration. Notice may be relevant, however, in determining successor liability for violations of the predecessor. The factors to be considered 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.

29 CFR §825.107(a).

Seems a bit complicated, but as you can see, this is the same basic test used for Title VII so there is a body of case law that helps us determine when a company is a successor in interest.  So, if you are considering buying the assets of a company, keep in mind that you may also be buying obligations under the FMLA.