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The Corporate CounselorLJN NewslettersNewsSections

Acquiring More Than Just Assets

By R. Scott Oswald and Tom Harrington
February 28, 2014

In March 2013, the Seventh Circuit Court of Appeals, in an opinion written by Judge Richard A. Posner, decided the case of Teed v. Thomas & Betts Power Solutions, LLC, 711 F.3d 763, 764 (7th Cir. 2013). In a win for employees, the court held that the more plaintiff-friendly federal common law test is appropriate in determining whether an acquiring company assumes the liabilities associated with pending litigation under the Fair Labor Standards Act (FLSA).

The implications of the ruling are clear: Where one company seeks to acquire the assets of another, a simple disclaimer of liability will not be sufficient. Due diligence requires that the successor company closely examine any pending employment-related litigation of the seller and determine how a particular sale implicates the successor liability test under the federal common law.

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