In June 2009, we reported on the Ohio Supreme Court’s decision to create a narrow exception to the broad BWC successor rules. The Ohio Supreme Court’s decision in State ex rel. Valley Roofing, LLC v. Ohio Bureau of Workers’ Compensation created a small exception to the BWC’s broad authority to impose successorship liability when it held that a business that acquired another business's assets via a bank foreclosure was not a successor to the previous business.
Ohio’s courts have long held that the workers’ compensation statute authorizes the BWC to find successorship whenever “any employer transfers a business in whole or in part or otherwise reorganizes the business.” This broad definition permits the BWC to transfer the experience of a predecessor business to the purchasing business if the purchaser is succeeding the predecessor in some part of the operations of the business. Based on whether the purchase was of all or part of the operations, the BWC will transfer all or part of the predecessor’s experience, rights and obligations to the purchaser.
The Supreme Court’s holding is now invalidated by a recent change to Ohio Administrative Code 4123-17-02. Effective October 28, 2010, the BWC has implemented a new rule for evaluating when a business is deemed to be a successor in interest to another business. Pursuant to the new rule, the BWC will transfer a predecessor’s experience under the workers’ compensation law to the successor, regardless of whether the predecessor’s transfer to the successor was voluntary or through an intermediary bank or receivership. With the new rule, even if the transfer was to an intermediary bank or a receivership, the BWC will find successorship. Effectively, this permits the BWC to find a successorship in almost all situations, regardless of the nature of the transaction. As a result, any company purchasing the assets of an experience rated company will be held responsible for the experience of the purchaser, potentially including premiums attributable to bad claims and penalties for lapses in payment of premiums or failure to report payroll.
The BWC’s determination to transfer the predecessor’s rights and obligations under workers’ compensation law to the purchaser may be challenged, but the changes to the rule tightens the BWC’s authority and lessens the likelihood of success of such a challenge.
Many businesses, when looking to purchase the assets of other struggling businesses, do not consider the workers’ compensation liability of the selling company. Now more than ever it is vital to evaluate the workers’ compensation history of a selling company as part of any due diligence when purchasing the assets of another company, particularly a struggling business.