Does Buying a Business Mean You Also Acquire its Liability for Employment Discrimination?

Businesses frequently change hands. Smaller companies may merge into larger ones. Owners may decide it is time to retire and turn the business over to the next generation. Whatever the cause, when a business is transferred, it may affect pending employment discrimination arising from the conduct of the prior owners. If you are a worker who finds yourself in this type of situation, your first question will likely be, “Can I sue the new owner for the previous owner's actions?”

Applying the “Substantial Continuity” Test

Let's examine this pending discrimination lawsuit from upstate New York in which the judge had to answer this very question. The plaintiff worked in the kitchen of a fast food restaurant. Like many such restaurants, the business was owned by a franchisee of the parent company.

The plaintiff suffers from a number of health conditions that required him to take six weeks of unpaid leave under the Family and Medical Leave Act. Unfortunately, shortly after returning from leave, the plaintiff suffered an on-the-job injury and requested additional workplace accommodations. Instead, the plaintiff alleges, the employer fired him. The plaintiff subsequently filed an employment discrimination complaint with the U.S. Equal Employment Opportunity Commission (EEOC).

All of these events took place in 2016. In early 2017, the restaurant was sold to a different corporate entity. The new owner apparently continued to operate the restaurant in the same manner as before with the same management.

Initially, the plaintiff said the new owner offered to rehire him at his previous job and salary. But the offer was later withdrawn at the request of the same manager who made the decision to fire the plaintiff in the first place. The plaintiff then filed a second discrimination complaint with the EEOC, which cleared him to file a lawsuit against the new owner.

Before the judge, the new owner argued it was not liable for the discriminatory actions of the previous franchisee. The judge disagreed and said the plaintiff's lawsuit could proceed for now. As the judge explained, a “new employer that has taken over operations of an old employer” may be liable for the latter's actions if there is “substantial continuity” within the business. There are three factors a court must independently consider when determining whether substantial continuity exists:

  • Did the new owner have “notice” of the discrimination claim prior acquiring the business?
  • Did the new owner “substantially continue” the “business operations of its predecessor” after the sale was completed?
  • Is the previous owner in a position to “provide the relief sought” by the plaintiff?

In this case, the judge said the new owner had notice–as a result of the plaintiff's first EEOC complaint–prior to the completion of the sale. Second, the evidence presented so far indicates that the new owner “continued to operate the Franchise…at the same location and with the same workforce and management as before.” Finally, it is unclear whether the former owner “has any additional assets” following the sale of the restaurant. Given all this, the plaintiff has sufficiently pleaded a case for the new owner's successor liability.

Speak With a New York Employment Discrimination Lawyer Today

The sale of a business is just one of many factors that might complicate an employment discrimination case. This is why you need an experienced New York employment attorney by your side. Contact the offices of Nisar Law Group, P.C., today if you have been the victim of workplace discrimination and require immediate legal advice.