Bought a business? Beware FLSA judgments

If you buy a business, you could be held liable for violations of the predecessor owner under the Fair Labor Standards Act (“FLSA”) or state law. Believing that the successor is not liable for the conduct of the predecessor is a common misconception.

UNITED STATES DEPARTMENT OF LABOR, Wage and Hour Division (WHD)Whether a successor could be held liable under the FLSA depends upon many factors, such as:

  • Whether the successor had notice of the liability
  • Whether the successor operates a similar business
  • Whether the same managers and supervisors are employed
  • Whether the employees perform the same job responsibilities; and
  • Whether the successor continue to operate his business at the same location

For example: If you purchased a French restaurant, continue to operate as a French restaurant and keep most of the same employees, you could be held liable for any FLSA-based judgments or liens against the previous owner– even if you have formed a different entity and have signed a new lease.  

Do the proper due diligence.

Your attorneys or outside counsel should always conduct a judgment and litigation search in addition to a lien search. If there is a judgment against the predecessor, do not assume that you will not be held responsible. In reality, under the FLSA and comparable state laws, the judgment creditors could try to enforce that judgment against your successor business.

What should you do if you purchase a business, then learn that another party is seeking to enforce a judgment against you?

If you know about the judgment or pending litigation prior to the purchase, you should either withhold money in escrow to protect against potential liability and/or make sure you get an indemnification from the principal(s) of seller that is secured with assets to cover any liability.

If you need help acquiring a business, conducting due diligence or defending against an FLSA-based judgment, contact one of our experienced attorneys at: Levine Law, LLC. You may reach me at: (516) 921-6700 or hlevine@levinelawllc.com.

 

What will you do if someone attempts to enforce a judgment against you for the actions of a predecessor?

 

Harlan Levine
Tel. (516) 921-6700
hlevine@levinelawllc.com

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