The Seventh Circuit federal appellate court recently issued an opinion where it imposed successor liability under the Fair Labor Standards Act (FLSA) upon an asset purchaser. In that case, the successor company purchased the assets of the predecessor at auction. The asset purchase agreement specifically disclaimed all liabilities related to the predecessor, including claims under the FLSA. The federal court, however, disregarded these contractual disclaimers and found the successor company liable for paying a $500,000.00 FLSA settlement.
This decision adds just another item to the due diligence checklist for clients purchasing a business. It is imperative that clients (and their counsel) determine prior to closing whether there are potential employment-based liabilities of the predecessor. This recent case makes it clear that simply relying on the traditional contractual disclaimers will not be enough.
