California Labor &
Employment Law Blog

Sep. 27 2010

Ninth Circuit Addresses Successor in Interest Rule Under FMLA

Topics: Court Decisions, Employee Leave

In Sullivan v. Dollar Tree Stores, Inc., the Ninth Circuit addressed whether Dollar Tree was a successor in interest and thereby required to provide FMLA leave to employees who previously worked for a company whose leasehold interests were purchased by Dollar Tree in the course of bankruptcy proceedings. The plaintiff was a former employee of Factory 2-U, which filed for bankruptcy in 2004. Plaintiff stopped working for Factory 2-U in September 2004, at which time she was hired by Dollar Tree. Plaintiff had no period of unemployment between the two jobs. Dollar Tree had purchased Factory 2-U's leasehold interest in the same location (as well as several other locations) as the Factory 2-U store. However, Dollar Tree did not purchase any other assets of Factory 2-U.

About eight months after she started working at Dollar Tree, Plaintiff requested leave to care for a family member with a serious health condition. Dollar Tree gave her some time off, but refused to give her a full 12 weeks of leave under the FMLA, on the ground that Plaintiff had not worked for Dollar Tree for 12 months and, therefore, was not eligible for FMLA leave. The issue before the Ninth Circuit was whether Dollar Tree was a successor in interest to Factory 2-U for purposes of the FMLA. If a successor in interest, then an employee's service time at Factory 2-U would have to be counted to determine whether an employee was eligible for FMLA leave at Dollar Tree. If not a successor in interest, then Dollar Tree was not required to provide FMLA leave.

The court applied the Department of Labor regulation, 29 CFR 825.107, detailing factors to be considered in determining whether an employer is a successor in interest to another entity. The court held that even though Dollar Tree purchased Factory 2-U's leashold interest, operated a similar business out of the same location, and hired some of Factory 2-U's employees, Dollar Tree still was not a successor in interest under the FMLA. The court reasoned that Dollar Tree did not purchase any other assets or inventory of Factory 2-U, it required Factory 2-U's employees to apply for jobs with Dollar Tree (it did not automatically hire all employees), it closed the store for a month to renovate and train employees for new operations, it brought in a new store manager, and it brought in all new inventory. Based on these findings, the court held that Dollar Tree was entitled to summary judgment in the case.

Interestingly, prior to the lawsuit being filed, the plaintiff had filed an administrative charge with the Department of Labor complaining about being denied FMLA leave. The Department of Labor issued a finding that Dollar Tree was a successor in interest to Factory 2-U and should have provided FMLA leave. The court held that this finding was hearsay, was untrustworthy in the circumstances, and was not sufficient to defeat Dollar Tree's motion for summary judgment.

The Sullivan v. Dollar Tree Stores opinion is here.

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About the Editor

Robin Largent represents employers, including major food and retail companies, in all types of employment litigation: wrongful termination, retaliation, breach of contract, wage and hour (California Labor Code) and unfair competition. She also regularly counsels and advises California employers on issues of compliance with California and federal employment laws.
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