Ninth Circuit Takes on Definition of "Successor-in-Interest" Under FMLA

In an opinion issued on September 27, 2010, the Ninth Circuit tackled the question of when a new employer is a successor-in-interest to a former employer under the FMLA.  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 the FMLA. 

In Sullivan v. Dollar Tree Stores, Inc., the plaintiff was employed by Factory 2-U before being hired by Dollar Tree, which bought the lease to the building where she worked and opened its own store there after Factory 2-U went bankrupt.  Dollar Tree did not purchase any assets of Factory 2-U other than the leaseholds. 

Within a year of becoming employed by Dollar Tree, the plaintiff sought leave under the FMLA, which was denied, and she resigned.  She later was reinstated by Dollar Tree, but filed suit against it, seeking her lost wages during the period that her resignation was in effect. 

The district court held that Dollar Tree was not a successor-in-interest to Factory 2-U and granted summary judgment to Dollar Tree.  The Ninth Circuit affirmed.  Applying the eight factors established by the Department of Labor to determine whether a company is a successor-in-interest under the law, the court concluded that, while some factors slightly suggested successorship, on balance successorship had not been established.  In particular, the court noted that when it opened its store Dollar Tree brought in many of its own employees, trained employees in its own methods, changed the plaintiff's job title and responsibilities, and brought in all new inventory. 

The Ninth Circuit joins only a handful of federal courts that have addressed this issue.  When merging with or purchasing the assets of another company, employers should be aware that they may become a succesor-in-interest to certain employees of the former employer.