Successor Liability Applies to Claims Under the Fair Labor Standards Act According to Seventh Circuit Court of Appeals
4 April 2013
Mayer Brown Legal Update
In a recent decision, the US Court of Appeals for the Seventh Circuit has upheld the imposition of successor liability for FLSA claims on a company that had acquired the assets of an insolvent predecessor at an auction conducted by a state law receiver. In doing so, the court ruled that federal common law (and not state law) governs the issue of successor liability for FLSA claims, but rejected the multi-factor test usually applied to such successor liability questions under state law in favor of an apparent rule that presumes such liability absent the showing of sufficient good reasons to the contrary. However, the decision appears to leave unsettled, even in the Seventh Circuit, the question of the likelihood of the imposition of successor liability for FLSA claims in a typical distressed situation, particularly one occurring in a federal bankruptcy case.