law approach.
The parties disputed which law
governed Thompson's FLSA successor
liability claims. Thompson argued
that, as to her FLSA claim, the court
apply a federal common law standard
for successor liability that has slowly
gained traction in the field of labor and
employment disputes over the years.
The federal common law standard
requires consideration of the following
factors in determining whether successor
liability should be imposed: "continuity
of operations and work force" from
the predecessor to the successor, the
successor's notice of the predecessor's
legal obligation, and the ability of the
predecessor to provide the relief sought.
By contrast, under New Jersey law,
successor companies are considered
legally distinct from their predecessors
and do not assume any debts or
obligations of the prior entity, except
where: (1) the purchasing corporation
expressly or impliedly agreed to assume
such debts and liabilities; (2) the
transaction amounts to a consolidation
or merger of the seller and purchaser;
(3) the purchasing corporation is
merely a continuation of the selling
entered into fraudulently in order to
escape responsibility for such debts
and liabilities. The court agreed with
Thompson that the federal law applied
but found that an issue remained as to
whether Thompson's allegations satisfy the
federal common law standard in the case
at hand.
the court found the allegations were
enough to surmount a motion to dismiss
under the federal standard. The court
held that the first factor was satisfied
finding that there was sufficient continuity
in the operations and work force when
REMN took over Security Atlantic, since
essentially all aspects of employment
remained the same. Second, while the
complaint did not clearly allege facts
that show that REMN had knowledge of
Security Atlantic's FLSA violations before
the transfer, the plaintiff alleged that
Security Atlantic's payroll and scheduling
was controlled by her supervisors who
later became officers of REMN, and
after the transfer, the same practices and
operations continued under the same
management. As to the third factor, the
predecessor's "ability . . . to provide
have represented that Security Atlantic
is now "defunct," which the court
interpreted to mean that it is likely
incapable of satisfying any award of
damages to plaintiff. In total, the Third
Circuit found these allegations were
enough to surmount a motion to dismiss
under the federal standard.
The court also reinstated Thompson's
claims under the New Jersey Wage and
Hour Law, finding that her allegations
satisfied the more restrictive state law
standard as well.
to embrace a broad view in evaluating
the question of whether federal FLSA
liability may be imposed upon a successor
company. Employers taking on workers
through corporate acquisitions or who
are faced with acquiring employees from
related corporate entities should consider
the potential FLSA ramifications. As more
federal courts find companies liable under
common law successor liability principles
for FLSA violations, companies should
require strict review of potential successor
companies' wage and hour practices for all
potential mergers and acquisitions.