Hunton Employment & Labor Perspectives

Under the Family and Medical Leave Act ("FMLA"), not only is an "employer" responsible for compliance with the FMLA, but any "successor in interest of an employer" is responsible as well. However, the FMLA does not define the term "successor in interest." The meaning of this term is crucial because an employee who has worked for an employer for less than 12 months might still be eligible for FMLA protection if that employer is considered a successor in interest to the employee’s former employer and the employee’s combined length of service for both employers is 12 months or more.

A Department of Labor ("DOL") regulation interpreting the FMLA, which is codified at 29 C.F.R. § 825.107, enumerates the following eight factors to be considered in determining whether a firm is a successor in interest: (1) substantial continuity of the same business operations; (2) use of the same plant; (3) continuity of the work force; (4) similarity of jobs and working conditions; (5) similarity of supervisory personnel; (6) similarity in machinery, equipment, and production methods; (7) similarity of products or services; and (8) the ability of the predecessor to provide relief. However, only a handful of courts have addressed the issue of successor liability under the FMLA, and until September 27th, the U.S. Court of Appeals for the Sixth Circuit was the only federal appellate court to have ruled on the issue.

On September 27th, the U.S. Court of Appeals for the Ninth Circuit, in applying the DOL’s test, held in Sullivan v. Dollar Tree Stores, Inc.,  No. 08-35413 (9th Cir. Sept. 27, 2010), that plaintiff Christina Sullivan was not entitled to FMLA benefits because her new employer, Dollar Tree Stores, Inc. ("Dollar Tree") was not a successor in interest of her former employer, Factory 2-U. The decision is illustrative of what courts might look at when assessing whether an employer is a successor in interest of a former employer.

The basic facts of the case were as follows: Dollar Tree had purchased Factory 2-U’s leasehold of a Pasco, Washington store after Factory 2-U filed for bankruptcy, and the plaintiff, who had been working at the Factory 2-U store as a full-time store manager for over a year, was hired by Dollar Tree as an assistant store manager. The plaintiff subsequently requested FMLA leave, but because she had not been working for Dollar Tree for at least 12 months, Dollar Tree only approved some of the leave that she had requested. In determining whether Dollar Tree was a successor in interest of Factory 2-U for the purposes of the FMLA, the court considered the eight-factor test laid out in the DOL regulation.

The court noted that although Dollar Tree was operating a similar business out of the same location, Dollar Tree did not purchase any other assets from Factory 2-U other than the lease on the building, and Dollar Tree spent weeks renovating the store’s interior to meet its own design specifications. The court also noted the following: Factory 2-U’s employees were required to apply for jobs with Dollar Tree if they wanted to work for Dollar Tree, and only the plaintiff and one other employee of Factory 2-U were hired by Dollar Tree; Dollar Tree trained the employees in its own methods; and Dollar Tree employed a new store manager. The court concluded, "considering all the regulatory factors as a whole, the interests of Plaintiff and Dollar Tree, the policy goals of the FMLA, and the equities disclosed in the record," Dollar Tree was not a "successor in interest" to Factory 2-U within the meaning of the FMLA.

This recent opinion is a reminder that when merging with or purchasing the assets of another company, employers should be cognizant of the possibility that they will be considered a "successor in interest" of the other company and therefore obligated to provide that company’s employees with rights and benefits under the FMLA immediately after the merger or purchase. As shown by the opinion, any such inquiry will be incredibly fact-specific, and employers should therefore seek the advice of counsel prior to denying FMLA leave requests made by the merged or purchased company’s employees.