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Purchaser of Leaseholds Not Successor Employer Under FMLA

    Client Alerts
  • October 08, 2010

In order to be eligible for job-protected leave under the Family and Medical Leave Act, a covered employee must have worked for the employer for a minimum of twelve months, and 1250 hours in the last year. What happens when an employer's assets are bought by a new company, and employees shift over to the purchaser's employment? Does the twelve month clock begin anew? Last week, the Ninth Circuit Court of Appeals concluded that a purchaser of limited assets of the previous employer is not a "successor employer" under the FMLA.

In Sullivan v. Dollar Tree Stores, Inc., the plaintiff worked for a discount clothing store that filed for Chapter 11 bankruptcy. Dollar Tree bought the leaseholds for a number of the bankrupt entity's locations, but acquired no other assets. The plaintiff had been employed by the bankrupt company, and was hired by Dollar Tree in the same remodeled location four weeks after her store closed. About eight months after she began working for Dollar Tree, the plaintiff's mother became ill, and she requested FMLA leave to care for her. Dollar Tree denied the request, and the plaintiff sued, claiming interference with her FMLA rights.

The plaintiff contended that Dollar Tree was a successor in interest to her prior employer, and that she fulfilled the FMLA's twelve month eligibility requirement when her employment for both employers was combined. The Ninth Circuit rejected this claim, affirming summary judgment for Dollar Tree. In its opinion, the court reviewed the DOL rule that defines successor employers (29 C.F.R. § 825.107), and concluded that for the new company to be deemed a successor in interest, it must essentially operate the same business as the prior employer.

In this case, the Ninth Circuit concluded that Dollar Tree was not a successor employer because it only acquired the leases of the prior employer. It completely remodeled the store, and sold goods that went beyond clothing. The common retail concept is not enough to impose successor liability. The court also noted that the store closed for a month for the remodeling, indicating a lack of continuity of operations.

Successor employer status depends on a case-by-case analysis of the facts. In situations where the new employer purchases substantially more assets than was the case here, or when the new employer operates essentially the same business, any employees who move from the old company should be credited with time worked for that prior employer when FMLA eligibility is determined.