Third Circuit Articulates Theories of Successor Liability Under FLSA

In Thompson v. Real Estate Mortgage Network, No. 12-3228 (3d. Cir. Apr. 3, 2014), the Third Circuit Court of Appeals recently found a successor employer potentially responsible for Fair Labor Standards Act (FLSA) violations of its predecessor employer, adopting the broader and more employee-friendly federal common law standard for determining FLSA successor liability, rather than the standard under New Jersey state law. The employee was hired by one company, Security Atlantic, but soon after was asked to apply for a position with its sister company, Real Estate Mortgage Network (REMN), which she did. Following a short stint of employment at REMN, the employee filed suit against both companies, asserting various state and federal wage claims under various theories of liability.

Of particular note was her claim that REMN was a successor in interest to Security Atlantic, and as such, that REMN was obligated to assume Security Atlantic’s debts and liabilities. It was previously unsettled in the Third Circuit whether to apply federal common law or state law to determine successor liability under the FLSA. Federal common law presents a lower bar to relief than most state jurisprudence in that it dictates consideration of only the following factors: “(1) continuity in operations and work force of the successor and predecessor employers; (2) notice to the successor-employer of its predecessor’s legal obligation; and (3) ability of the predecessor to provide adequate relief directly.” Joining with the Seventh Circuit and Ninth Circuit Courts of Appeals, the court held that the more relaxed federal standard for successor liability is appropriate for FLSA claims in the Third Circuit, and vacated the district court’s order on FLSA successor liability.