Successor Liability Can Flow to New Operator If There is No Showing of an Improvement in Safety in the New Business

The Ohio Administrative Code specifically provides that where one employer succeeds another in a business, in whole or in part, the successor shall assume the predecessor’s obligations under the workers’ compensation laws and, therefore, may receive a transfer of the experience of the predecessor.  The key phrase in these types of situations is whether or not the new owner is the “successor in interest.”  This is defined simply as a “transferee of a business in whole or in part.”  Unfortunately, there is no set list of factors for the Bureau of Workers’ Compensation (BWC) to consider in determining whether an employer should be considered a successor in interest after the purchase of a business or the assets of an ongoing business.  As a result, it requires a case by case factual determination by the BWC and can be a very risky scenario for a purchaser where the predecessor has a negative or penalty rated experience.

A recently decided case provides an example of the factors that are considered when reviewing these types of scenarios.  State ex rel. RFFG v. Ohio BWC (Ohio App. 10^th Dist. 2013), No. 11AP-647.  InRFFG, Ameritemps was purchased by WTS Acquisition Corporation and subsequently transferred to RFFG.  The transaction included only a purchase of equipment, leases, contracts, general intangibles, customer lists, and goodwill from Ameritemps.  There was no purchase of the stock of Ameritemps.  After receiving notification of the purchase, the BWC notified RFFG that it considered RFFG the successor in interest to Ameritemps.  RFFG then filed an objection to this finding and the matter was heard by the Adjudicating Committee of the BWC.  The Adjudicating Committee issued an order affirming the transfer of the experience from Ameritemps to RFFG.  Thereafter, RFFG filed a mandamus action.

In refusing to grant RFFG mandamus relief, the Court noted that while there was evidence presented that there had been changes made by RFFG with regards to core employees at the Ameritemps operations, and even within senior management, that evidence was not enough to necessitate a finding that RFFG was not a successor in interest.  Instead, the Court focused on whether there was evidence presented that the “risks” involved in the ongoing business had changed as a result of the change in ownership.  Apparently, RFFG failed to address this crucial issue and provided no evidence of any change in safety programs, procedures for conducting business, or injury frequencies.  For this reason, the Court ruled against RFFG.

This case provides an important lesson for any company involved in the acquisition of an ongoing business that has a negative workers’ compensation experience rating.  Instead of focusing merely on changes in the way the business is operated, the focus now, according to the Tenth District Court of Appeals, should be on risks associated with the business and, in particular, risks associated with workplace injuries.  This is a different analysis than what we have seen in the past with regards to the issue of successor liability.  It is not enough anymore to merely show a change in management or continuity in the operations.  Instead, due diligence will require a review of the risks associated with the ongoing business and whether efforts are made to change or address problems with workplace safety and claims management.