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Buying a business? You may be on hook for old violations

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in Compensation and Benefits,Human Resources,Leaders & Managers,Management Training

Companies planning to take over existing businesses and continue running them as they were run in the past—watch out!

If the former management didn’t pay its employees properly, your company may be inheriting legal liability as well as a new business.

Advice: It’s essential to make sure there are no pre-existing labor law violations, or structure the business takeover in a way that avoids liability. Your best bet is to involve an experienced labor attorney. Good legal counsel can help determine whether liability lurks, or figure out how to structure the takeover in a way that minimizes the risk that your company will be left holding the bag.

Recent case: Ming Chen and several other food servers at Majestic Buffet sued for unpaid overtime and minimum wages, having to pay “right to work fees” and penalties for work mistakes. The suit also alleged other labor law violations. When a new company opened up shop in the same location three weeks after the original Majestic Buffet closed down, the employees sued New Majestic Buffet, too.

New Majestic Buffet asked the court to dismiss the case, reasoning that the business wasn’t even incorporated when the alleged violations took place, and that it was not the same business. But the court said the food servers should have a chance to conduct discovery so they can try to prove the new business was really just the old business operating under another name. (Chen, et al., v. Majestic Buffet, et al., No. 06-3459, DC NJ, 2007)

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