The Ninth Circuit Federal Court of Appeals recently followed the Seventh Circuit’s rule that a successor employer can be liable for a predecessor business’s multiemployer pension plan withdrawal liability in an asset sale if the successor took over the business with notice of the liability. Generally, in an asset sale, a successor employer is liable for withdrawal liability if there is an express or implicit assumption of such liability in accordance with ERISA procedures. However, courts have imposed successor liability without an assumption where there is continuity of operations and notice of such liability. In Resilient Floor Covering Pension Trust Fund Board of Trustees v. Michael’s Flooring Covering, Inc., the Ninth Circuit expanded upon the meaning of “continuity of operations” and held that the most important factor in determining whether there is substantial continuity in the business operations is whether the successor has taken over the economically critical bulk of the prior employer’s customer base. Even though the purchaser (a former salesman of the predecessor employer) purchased only 30 percent of the predecessor’s assets at public auction and none of its customer lists or goodwill, and used his own experience and contacts to hire the predecessor’s former employees and contact customers, the court remanded the case back to the district court to determine whether there was sufficient continuity of the predecessor’s business (most notably, continuity of the customer base) to be a successor. This ruling is an intentional departure from common law principles that typically govern asset sales and the adoption of broader employment and labor successor law doctrines. Potential purchasers of assets should be mindful of such potential liability when acquiring businesses.
Resilient Floor Covering Pension Trust Fund Board of Trustees v. Michael’s Flooring Covering, Inc., No. 12-17675 (9th Cir. Sept. 11, 2015).