Sixth Circuit expands successor liability under FMLA

When assessing liability for another company's corporate obligations, courts distinguish between a purchaser of stock and a purchaser of assets, typically imposing liability on the former but not the latter.  When the liability sought to be imposed is an employment obligation, the scope of liability is often broader, and may result from either a stock purchase or asset transfer, depending on the circumstances.  However, in a case of first impression, the Sixth Circuit held that neither a merger or transfer of assets is a necessary prerequisite to imposing successor liability under FMLA.

In Cobb v. Contract Transport, Inc., the plaintiff worked as a trucker for Byrd Trucking, driving a Philadelphia-Denver route for the United States Postal Service (USPS).  The contract specified, among other things: (1) the type of truck required; (2) hiring criteria for truck drivers; and (3) the employees' wages, hours, and health insurance.  When the USPS selected Contract Transport as the successful bidder for the Philadelphia-Denver route, Contract Transport hired drivers who had previously driven the same route for Byrd.  Plaintiff drove the route in the same manner, making the same stops, and using the same transfer point for Contract Transport as he had for Byrd.

Several months after he started working for Contract Transport, Cobb became ill, requiring emergency surgery. Shortly after notifying Contract Transport of his need for medical leave, Cobb was fired for making himself "unavailable for work."  He sued under FMLA, but the district court found him ineligible and dismissed the case because he worked for Contract Transport for less than 12 months, which is the minimum threshold for eligibility under FMLA.

On appeal, plaintiff argued that he was, in fact, an "eligible employee" because the three years he worked for Byrd counted toward his FMLA eligibility under the theory of successor liability.  The Sixth Circuit agreed, reasoning that the FMLA implementing regulations do not require a merger or transfer as a precondition to imposing successor liability.  Examining earlier cases that decided successor liability under Title VII and labor law, the court concluded that the courts "apply an equitable, policy-driven approach."

Successor liability is imposed in labor law if the court determines that it would be equitable to impose such liability considering 1) the defendant’s interest, 2) the plaintiff’s interest, and 3) federal policy embodied in the relevant statutes in light of the particular facts of the case and the particular duty at issue. See EEOC v. MacMillan Bloedel Containers, Inc., 503 F.2d 1086, 1089-91 (6th Cir. 1974) (adopting labor approach to successor liability in a Title VII case).

The court in MacMillan deemed the following factors relevant in determining whether to impose successor liability: 

(1) whether the successor company has notice of the charge; (2) the ability of the predecessor to provide relief; (3) whether the new employer uses the same plant; (4) whether there has been substantial continuity of business operations; (5) whether the new employer uses the same or substantially same workforce; (6) whether the new employer uses the same or substantially same supervisory personnel; (7) whether the same jobs exist under substantially the same working conditions; (8) whether [the defendant] uses the same machinery, equipment and methods of production; and (9) whether [the defendant] produces the same product.

MacMillan, 503 F.2d at 1094. These factors have since been codified in FMLA regulations at 29 CFR § 825.107.

Based on the FMLA regulation and prior cases, the Sixth Circuit reasoned that the duty to provide leave under FMLA has no relationship to a company’s physical assets. Rather, the duty "arises through statute and an employee’s tenure." Consequently, the court saw "no reason to hold that a merger or transfer of assets is a precondition to the imposition of the duty." Stretching this reasoning to the extreme, the court said:

Plaintiff has carried U.S.mail on the exact same route, with the exact same relay stops, for the past three years. In reality, it as if Plaintiff works for the USPS and not for one particular trucking company. Only the management, not the job, has changed.

The Cobb case is probably the most expansive reading of successor liability for employment obligations to date. While the case is not binding in the Ninth Circuit, companies should be aware that any merger, consolidation, asset purchase or other transaction that involves the continuation of business operations with the same employees may result in liability for the predecessor's employment obligations.