Although not a recent case, the decision discussed below is worth repeating during this down business cycle when some smaller and less profitable business sell to larger more profitable competitors. The business that does the acquiring should be aware of the implication of this case as it relates to successor liability for violations of the Family Medical Leave Act (FMLA).

Contract Transport Inc. took over a transport contract with the U.S. Postal Service from Byrd Trucking around June 2003. Shortly after the purchase of the Byrd Trucking contract, Ronald Cobb, a truck driver who worked for Byrd for three years before being hired by Contract Transport in June 2003, became ill and needed time off of work. Due to Mr. Cobb’s inability to work, due to his medical condition, Contract Transport terminated the employment of Mr. Cobb. Mr. Cobb then filed suit claiming that his termination violated the federal Family & Medical Leave Act (“FMLA”).

Contract Transport argued that Cobb was not eligible for FMLA leave because he had not worked for Contract Transport for the minimum of 12 months required under FMLA. While the lower court agreed with Contract Transport, the reviewing Appeals Court, in June 2006, reversed the lower court, holding that Cobb was an eligible employee for FMLA purposes and deemed Contract Transport potentially liable for violating the FMLA.

As the Appeals court noted, an employee is only eligible for FMLA leave after working for a covered employer for at least 12 months. However, work for a covered employer includes work performed for the employer from which leave is requested and any previous employer to whom the current employer is a “successor in interest.” 29 USC §2611(4)(ii)(II). Whether a “successor in interest” relationship exists is determined based upon the totality of the circumstances. However, the key factors examined are:

• Substantial continuity of the same business operation
• Use of the same plant
• Continuity of the work force
• Similarity of jobs and working conditions
• Similarity of supervisory personnel
• Similarity of machines and equipment
• Similarity of products and services
• Ability of the predecessor to provide relief.

Significantly, the Sixth Circuit rejected the argument that successor liability could only apply following a merger or transfer of assets. The court ruled that successor liability was applicable even in the absence of a merger or asset transfer.

This decision should serve as a clear reminder for employers that acquire on-going businesses, or succeed other companies in certain contracts, that newly acquired employees may be eligible for FMLA leave based upon time of service to the previous employer. If your business is considering the purchase of another business or taking over the contract services of a failing business, please consider consulting with an attorney about these and other issues that may impact how you handle the ongoing employment relationship of the acquired company’s employees.