It would be easy for employers to assume that they need not worry about an employee’s eligibility for Family and Medical Leave Act (“FMLA”) leave until at least one year has passed since the employee began working for the employer. This is because to be eligible for leave under the FMLA, an employee must have: 1) been employed “for at least 12 months by the employer with respect to whom leave is requested;” and 2) worked “for at least 1,250 hours of service with such employer during the previous 12-month period.” 29 U.S.C. § 2611(2)(A).
Similarly, the FMLA contains certain threshold requirements that must be met for an employer to be covered by the FMLA. Chief among the requirements is that the employer must be one “who employs 50 or more employees for each working day during each of 20 or more calendar workweeks in the current of preceding year.” 29 U.S.C. § 2611(4)(A)(i).
Generally, this means that an employer with 50 or more regular employees is required to grant FMLA leave for “eligible employees” whom have worked for the employer for at least one year. The FMLA also specifically extends this coverage to “any successor in interest of an employer.” 29 U.S.C. § 2611(4)(A)(i)(II). This extended coverage has typically applied to new employers who would be considered a “successor in interest” to previous employers under corporate law concepts. In other words, “successor in interest” coverage would apply because of a merger or transfer in assets from a covered employer to a new employer.
In the context of government contracts, however, FMLA coverage may apply even if no merger or transfer of assets has taken place. Under federal regulations, the following eight factors are used “in determining whether an employer is covered because it is a ‘successor in interest’ to a covered employer” under the FMLA:
- Substantial continuity of the same business operations;
- Use of the same plant;
- Continuity of the work force;
- Similarity of jobs and working conditions;
- Similarity of supervisory personnel;
- Similarity in machinery, equipment, and production methods;
- Similarity of products or services; and
- The ability of the predecessor to provide relief.
29 C.F.R. 825.107(a). No single factor is conclusive in making the “successor in interest” determination and courts analyze the eight factors in the context of “balancing the interest of the employee versus the employer.” Osei v. Coastal International Security, Inc., No. 1:13-cv-1204, 2014 WL 6608762 at *3 (E.D. Va. Nov. 19, 2014).
In applying these factors, some courts have explicitly held that a merger or transfer of assets is not a necessary prerequisite to finding that government contractors will be liable as “successor in interest” employers under the FMLA, while other courts have remained silent as to whether or not a merger or transfer of assets is a prerequisite to FMLA liability. Compare Cobb v. Contract Transportation, Inc., 452 F.3d 543, 551 (6th Cir. 2006) (declining to “require a merger or transfer of assets as a precondition to the imposition of successor liability.”) with Sullivan v. Dollar Tree Stores, Inc., 623 F.3d 770 (9th Cir. 2010) concluding that a new employer was not liable as “successor in interest” under FMLA without addressing the absence of a merger or transfer of assets.
This unsettled legal point presents a very real concern for government contractors. In the familiar circumstance of taking over a contract previously held by another company, government contractors may be considered covered employers under the FMLA’s “successor in interest” provision. For such government contractors, any incumbent employees who are hired or inherited from a predecessor contractor and who have worked on the contract for more than one year could immediately become eligible for the protections of the FMLA after having only worked for the successor contractor for a single day.
The possibility of immediate employee eligibility matters for companies competing for government contracts because of the potential consequences of FMLA violations. Under the FMLA, it is illegal for employers to interfere with or retaliate against an employee for the exercise of rights granted by the FMLA. 29 U.S.C. § 2615. This means, for example, that an employer cannot consider an employee to have voluntarily resigned due to a request for several months of leave to address health issues if the employee is an “eligible employee” under the FMLA. See Cobb at 556-57.
With respect to government contractors, this may be true even when an employee requests such leave on the first day of work for the contractor so long as the employee has worked on the contract for more than one year and the contractor is covered under the FMLA as a “successor in interest” employer.
For violations of the FMLA, employers face potentially significant costs. Not only in the form of the cost of defending against a lawsuit, but also in the form of the courts’ ability to award an aggrieved employee lost wages and benefits, interest on lost wages and benefits, attorney’s fees and costs, and reinstatement (whether or not the employee’s position still exists or has been filled by another employee). 29 U.S.C. § 2617(a).
To avoid incurring these costs, successor contractors should consider several factors when deciding whether to grant FMLA requests from incumbent or inherited employees whom have worked on the contract for more than one year, including:
- Whether the contractor is hiring more than half of the workforce from the contract being taken over;
- Whether the business, operations, and services provided are similar to those of the predecessor contractor;
- Whether the same physical location, plant, and equipment are being used; and
- Whether there is little to no break in operations upon taking over the contract.
If some or all of these factors apply then the successor contractor will likely be considered a “successor in interest” to the predecessor contractor for purposes of employer coverage under the FMLA. In such a scenario, contractors remaining mindful of their likely status as a “successor in interest” can reduce the potential for liability by making informed decisions to grant or deny employees’ FMLA requests.
About the Author: Corey Argust is an associate with PilieroMazza in the Labor and Employment, Litigation, and Government Contracts groups. He may be reached at email@example.com.