Think You Purchased Assets “Free and Clear”? That’s Not Always the Case When it Comes to Liability for Violations of Federal Employment and Labor Laws

Generally, buyers of corporate assets intend to acquire the assets but not the liabilities of the seller. Whether or not a purchaser acquires such liabilities is an issue of successor liability. Most states limit successor liability to situations in which the seller expressly or implicitly agrees to assume responsibility for such liabilities. Thus, it is not uncommon to see asset purchase agreements that purport to disclaim any liability for the debts or liabilities of the seller. However, such disclaimers do not control when the liability arises under federal labor and employment laws.

The United States Court of Appeals for the Seventh Circuit recently addressed this issue in Teed v. Thomas & Betts Power Solutions, Case Nos. 12-2440, 12-3029, 2013 WL 1197861, clarifying the standard for successor liability under federal law. In Teed, the Court found that a purchaser of corporate assets was liable for the seller’s liabilities under the Fair Labor Standards Act (“FLSA”) for overtime pay violations even though the purchaser acquired the assets on the condition that such acquisition was “free and clear” of all liabilities. Although such disclaimer of successor liability would normally allow the purchaser to be off the hook for liabilities under state law, the Court in Teed held that such disclaimers do not control in situations where liability under federal employment and labor statutes like the FLSA is at issue.

Instead, the determination of whether a purchaser is liable for a seller’s violations of federal law, including wage/hour claims under the FLSA, depends on a consideration of the following factors:
•  Whether the purchaser had notice of the pending lawsuit/liability (If the purchaser has notice, this factor weighs in favor of successor liability on the theory that the purchase price was reduced to account for such liability);

•  Whether the seller would have been able to provide the relief sought in the lawsuit before the sale (If the answer is no, then this factor tends to weighs against successor liability on the grounds that recovery would be a “windfall” to plaintiffs);

•  Whether the seller could have provided relief after the sale (A seller’s inability to provide relief weighs in favor of successor liability because, without it, the plaintiff’s claim would be worthless);

•  Whether the successor can provide the relief sought; and

•  Whether there is continuity between the operations and the work force of the seller and the purchaser (If yes, then this factor weighs in favor of successor liability on the theory that nothing has really changed)

In Teed, the Court clarified that the default rule in most cases is to hold a purchaser liable in suits to enforce federal labor or employment laws, even when the purchaser disclaimed liability when it acquired the assets. In so holding, the Court explained that the imposition of successor liability is often necessary to achieve the statutory goals of federal labor and employment statutes because workers are generally unable to stop a corporate sale by their employer aimed at extinguishing the employer’s liability to them. In turn, a purchaser of corporate assets can be “compensated” for bearing the liability for such claims by reducing the purchase price for the assets it acquires.

Thus, it is clear that purchasers of corporate assets should consider the factors for successor liability on federal claims when vetting an asset purchase even though they intend to include a disclaimer of liability in the asset purchase agreement. If there is any doubt about potential exposure, such liabilities should be considered when evaluating the purchase price.

Contact: Emily Wilcheck


OSHA States that Union Representatives Can Participate in Inspections of Non-Union Workplaces

In an interpretation letter released on April 5, 2013, OSHA stated that employees in a non-union facility may select a non-employee who is affiliated with a union to act as their representative during OSHA’s walk-around inspection of the employer’s worksite. OSHA issued the letter in response to a question from a health and safety specialist of the United Steelworkers Union.

By way of background, OSHA regulations provide that employees may designate a representative to accompany the OSHA compliance officer during the physical inspection of any workplace. The regulations recognize that in most cases the representative will be an employee of the employer. However, the compliance officer also has authority to permit a non-employee third party to be present during the inspection whenever it is “reasonably necessary to the conduct of an effective and thorough physical inspection of the workplace.”

The new OSHA interpretation letter specifically recognizes that non-union employees may select a union representative to accompany the compliance officer during the inspection. OSHA reasoned that union representatives could make an important contribution to the inspection through their experience evaluating similar working conditions in different plants. OSHA also noted that workers in some situations may feel uncomfortable talking to a compliance officer without “the trusted presence of a representative of their choosing.” OSHA even went so far as to rescind an older interpretation letter that may have conflicted with its new position on this issue.

Clearly, non-union employers should be concerned about this policy, which may encourage union representatives to use OSHA as an organizing tool. The policy creates an opportunity for union representatives to make contact with non-union employees at their workplace and promote the benefits of organizing and collective bargaining. So, what can non-union employers do to keep employees from selecting a union representative to speak for them during an OSHA inspection? The safest course is to encourage employees to become actively involved in workplace safety issues. For example, employers can create a safety committee and invite employees to join the committee. Employees who are already involved in safety issues will be less likely to reach out to a union representative when an OSHA inspection occurs.

A legal battle is anticipated regarding OSHA’s new policy. In the meantime, Roetzel will keep you updated on new developments in this important issue.

Contact: Nathan Pangrace


Workers’ Compensation: Injury to “Volunteer” is Not Compensable When No Employer Benefit Provided

On March 25, 2013, the Twelfth District Court of Appeals of Ohio decided the case of Margello v. Parachute & Special Advocates for Children, 2013-Ohio-1106. Jean M. Margello applied for workers’ compensation benefits after she claimed she sustained injuries in a fall while visiting a client’s home as a volunteer court-appointed special advocate. The Bureau of Workers’ Compensation (BWC) denied Ms. Margello benefits. She appealed to the Butler County Common Pleas Court, was denied again, and then further appealed.

In its review, the appeals court focused on the statutory definition of an “employee” under Ohio R.C. 4123.01 in regards to the facts of this case. Ms. Margello was a volunteer who argued that she was an “employee” eligible for benefits because “the organization received value from her volunteer services and exerted substantial control over its volunteers.” The appeals court, however, rejected that argument and held that Ms. Margello did not qualify as an “employee” for the purposes of workers’ compensation, as she received no compensation or benefits for her volunteer services. The court also focused on rulings in prior cases that “a determining factor in establishing whether an employee-employer relationship exists is a contract of hire, express or implied, oral or written.” Here, there was no obligation for Ms. Margello to be paid, and thus no contract for hire existed. The court also noted that she did not receive free services in exchange for the work that she performed. If she had, the appeals court hinted that this might have been a compensable claim.

Contact: Christopher Debski


Roetzel Prevails in Ohio Sex Discrimination Case Covered in CCH Employment Law Daily

A recent case in which Roetzel Partner Karen Adinolfi prevailed was featured in the March 13, 2013 issue of CCH Employment Law Daily. The case, Inskeep v. Western Reserve Transit Authority, affirms a lower court’s judgment on the pleadings in favor of the employer with respect to an employee’s sexual orientation discrimination claim.

The Ohio Seventh District Court of Appeals rejected the employee’s argument that sexual orientation is included within the meaning of the term “sex” under Ohio’s employment discrimination statute. The court also affirmed dismissal of the negligent infliction of emotional distress (NIED) claim because the employee did not sufficiently plead it and his affidavit was properly disregarded.

Contact: Karen Adinolfi


Roetzel Partners Featured Speakers at Affordable Care Act Webinar

Jon Secrest

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Doug Kennedy

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Seemingly Harmless Provision in a Severance Agreement Can Place Your Non-Compete Into Jeopardy

A recent case out of the Sixth District Court of Appeals in Ohio demonstrates how easily a few words (or the absence of a few words) in a severance or separation agreement can place a carefully crafted non-competition agreement into jeopardy. In Try Hours v. Douville, 2013-Ohio-53, an employer found itself battling a terminated employee to enforce a covenant not to compete that the employee argued was superseded by an integration clause within the employee’s separation agreement. Although the employer ultimately prevailed in this particular instance, the case demonstrates how easily an employer could unwittingly terminate an otherwise binding non-competition clause in the course of severing an employment relationship.

In the Douville case, the employer was involved in the expedited freight industry. Due to the highly competitive nature of this industry, the employer required employees to agree to a non-competition clause that was included within their employment agreements. The plaintiff in Douville signed an employment agreement containing such a clause agreeing not to engage directly or indirectly in any position with a competitor for a period of one year following the termination of his employment.

The employer in Douville later terminated the plaintiff on the basis that the plaintiff was not a good fit for the organization. The parties executed a separation agreement, which entitled the plaintiff to certain severance payments in exchange for a release of claims. The separation agreement included the following integration clause:
“The parties agree that this Agreement constitutes the entire Agreement between the parties as to the subject matter of this Agreement and no prior or subsequent oral Agreements, representations, or understandings shall be binding upon the parties and such shall be null and void and shall have no effect.”
The separation agreement did not include any reference to the non-competition clause from the employment agreement.

Shortly after his termination, the Douville plaintiff began working for a competitor believing that his separation agreement had superseded the employment agreement and voided the covenant not to compete. The former employer sued, seeking to enforce the one-year covenant not to compete. The Court narrowly found for the employer, holding that the reference to “the subject matter of this Agreement” within the integration clause limited the clause to the benefits the employer was willing to provide to the plaintiff in exchange for his release of any and all claims he may have had against the employer stemming from his employment. Additionally, the Court found that the clause only excluded prior or subsequent “oral Agreements, representations or understanding.”

Without these two limiting phrases, the result could have been entirely different for this employer. This case is a reminder to employers to carefully review the provisions of any such integration clauses in your separation or severance agreements to ensure that you are not inadvertently voiding otherwise binding non-competition and non-solicitation agreements.


Contact: Emily Wilcheck