Suppose a retailer declares bankruptcy. Several of its leases are sold off to another retail chain, which then remodels the stores, stocks them with its own merchandise, and opens them under its own name. If this retailer hires some of the bankrupt company's employees, are those employees new hires under the FMLA, or might they have the right to take FMLA leave immediately, without waiting 12 months or working 1250 hours for the new company?

In a recent ruling, the 9th Circuit Court of Appeals addressed this very question, and found that the new company was not a "successor in interest" to the former employer, and thus that the plaintiff did not have any right to FMLA leave in the first 12 months of his employment. Sullivan v. Dollar Tree Stores, Inc.

Unfortunately, there is no clear rule as to when an employer is a "successor in interest" to an employee's former employer. Instead, the FMLA regulations set out eight factors to be considered:

  1. Substantial continuity of the same business operations;
  2. Use of the same plant;
  3. Continuity of the workforce;
  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.

No one of the above factors are conclusive. Rather, the rules specify that "the entire circumstances are to be viewed in their totality."

Muddying the waters further, the 9th Circuit explained in Sullivan that these factors are only part of an even broader inquiry. The court adopted the following language from an earlier 6th Circuit decision:

“[T]he eight factors are "not in themselves the test for successor liability." Rather they are factors in an overarching, three-part test considering the equities of imposing a particular legal obligation on a successor: (1) the interests of the plaintiff-employee, (2) the interests of the defendant-employer, and (3) the federal policy goals of the statute.

Obviously this analysis is not particularly helpful for an employer trying to determine what if any obligations it may have under the FMLA. As a practical matter, the best course for employers will likely be to focus on the eight factors set out in the FMLA rules. The greater the similarities between the former employer's operations and those of the new employer, the greater the risk of FMLA liability, and the stronger the case for treating employees who worked for the former owner as if they were covered by the FMLA. Don't assume, however, that just because an employee started with your organization less than 12 months ago that he or she is not entitled to FMLA leave.