HR Legal News – Family Medical Leave Act: Successor in Interest

Sullivan v. Dollar Tree Stores Inc.

The Law

This HR legal news monthly update is brought to you by David Black, HR attorney and Andrew Niederhauser, Group Assistant for the NW HR Best Practices Roundtable. Each month they cover a legal development relevant to the HR profession to provide you with greater insight into law and the practical ramifications for employers. If there is a particular aspect of the law or situation you are interested in having us explore please contact David.

The Family and Medical Leave Act (FMLA) entitles “an eligible employee” up to 12 weeks of unpaid, job-protected leave for several reasons, including to care for an immediate family member (spouse, child, or parent) with a serious medical condition.

However, an employee is not eligible for leave under FMLA until he/she has worked for an employer for 12 months or at least 1,250 hours over the previous 12 months. Here, the term “employer” “includes…any successor in interest of an employer.” 29 U.S.C 2611 (4)(A)(ii).

What is a “successor in interest?”

For the purposes of FMLA, the following factors are considered, in totality, when determining whether an employer is a “successor of interest” to another employer.

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

The New Development

In the recent case of Sullivan v. Dollar Tree Stores Inc. (9th Cir., case no. 08-35413), the 9th Circuit Court of Appeals held that the plaintiff, Christina Sullivan, was not entitled to protection under FMLA because her new employer, Dollar Tree Stores, Inc., where she worked for less than 12 months, was not a “successor in interest” of her former employer, Factory 2-U. This is a critical issue because if an employee goes to work for a company deemed to be a successor in interest under the FMLA, the employee need not accrue an additional 12 months of tenure to become eligible for leave under FMLA.

Operating in the western United States and employing more than 4,000 people in over 200 stores, Factory 2-U was a retail store that sold discount clothing. The plaintiff, Christina Sullivan was a full-time store manager of the Factory 2-U store in Pasco, Washington. However, by 2004 Factory 2-U filed for Chapter 11 bankruptcy and in September of that year the courts approved the sale of Factory 2-U’s existing leasehold on the Pasco store to Dollar Tree Stores Inc. Upon taking control of the leasehold, Dollar Tree closed the Factory 2-U store, redesigned the location and continued to employ Ms. Sullivan throughout the transition period.

For the next eight months, Ms. Sullivan worked at the Dollar Tree store and in May, 2005 she requested a leave of absence under FMLA to care for her sick mother. While some of her leave of absence request was granted, the majority of it was denied when Dollar Tree determined that Ms. Sullivan was not eligible for FMLA.

Upon viewing the circumstances in their totality, including the above mentioned eight factors, the court concluded that Dollar Tree was not a successor in interest to Factory 2-U because there were simply not enough similarities between Dollar Tree and Factory 2-U. Most notably, the Ninth Circuit found that of the eight factors, only the fourth factor (similarity of jobs and working conditions), and the sixth factor (similarity in machinery, equipment and production methods) weighed in favor of successorship. “Dollar Tree purchased no inventory of Factory 2-U; it brought many of its own employees or newly hired employees; it closed the store for a month to perform renovations, trained employees in its own method’s and changed the plaintiff’s job title and responsibilities.”

Lesson for Employers

While it is vital to remain cognizant of the eight factors when determining successor of interest, they are not in themselves the test for successor liability. Rather they are factors in an overarching, three-part test, which takes into account; (1) the interests of the plaintiff-employee, (2) the interests of the defendant-employer, and (3) the policy goals of the FMLA.

Cases such as Sullivan v. Dollar Stores Inc., remind us that when combining business entities or purchasing assets, employers should be aware that they may be considered a successor in interest to certain employees of the former employer and incur FMLA and other employment law obligations.

Andrew Niederhauser
Andrew Niederhauser
Andrew Niederhauser, cowrote this article and is the Group Assistant for the NW HR Best Practices Roundtable.

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