Buying Most Assets is Not the Same as Buying All of a Business for Purposes of Unemployment Tax Successor Liability

Last week, the Franklin County Court of Appeals held that an employer was not a successor in interest for purposes of establishing its unemployment tax rate when it purchased a manufacturing plant in Ohio, but did not purchase the seller’s other Ohio plant, customer list, inventory, accounts receivable, employee files, benefit plan assets or works in progress and did not hire all of its employees. Pennex Aluminum Co., L.L.C. v. Ohio Dept. of Job & Family Servs., 2014-Ohio-5308. “R.C. 4141.24(F) unambiguously provides that successor-in-interest status arises automatically if ‘an employer transfers all of its trade or business to another employer.’"  In that the seller did not transfer all of its trade or business, the Office of Job and Family Services erred in imposing  contribution rates of 4.3 percent for 2010 and 8.8 percent for 2011 on the buyer employer under R.C. 4141.24.

According to the Court’s opinion, the employer initially appealed the rate determination to the ODJFS Director and then appealed his affirmation to the Unemployment Compensation Review Commission, which affirmed the rate determination after holding a telephone hearing.   On appeal to the Franklin County Court of Common Pleas, “ODJFS argued that the excluded assets set forth in the Asset Purchase Agreement did not consist of real, personal, and tangible property relevant to the ongoing business but, rather, consisted of property generally retained by a seller.”   However, the trial court did not agree and concluded that there was not substantial reliable evidence that the employer purchased all of the seller’s trade or business by buying most of the assets at just one of the seller’s plants. On appeal, the Franklin County Court of Appeals unanimously found that the trial court did not abuse its discretion.  

 

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.