Congratulations on the successful takeover! Now, how do you want those existing lawsuits? — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily
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Congratulations on the successful takeover! Now, how do you want those existing lawsuits?

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in Human Resources

When one company buys another, it gets the good and the bad—including any lawsuits that may have already been filed against the bought-out entity. The acquiring company may be liable for pending Title VII discrimination claims, but that liability will probably be limited to back pay and other compensatory damages. Chances are, punitive damages won’t be part of the deal.

Recent case: The EEOC sued Nichols Gas & Oil on behalf of several female employees who claimed the company president had sexually harassed them. The women said the president wanted them to sit on his lap, asked them about their sex lives and generally treated them disrespectfully.

While the lawsuit was pending, the president negotiated a deal with another oil company to purchase the assets and much of the business. He apparently wasn’t particularly upfront about the allegations pending against him and his company.

The sale went through, and the new owners continued operations largely unchanged. That’s when the EEOC moved to add the new owners to the lawsuit. The commission argued that pending lawsuit liability was part of the package.

The court largely agreed, at least where back pay and other compensatory damages were concerned. But it refused to burden the new owners with punitive damages, on the theory that such damages are meant to punish wrongdoing and that the new company had no part in the harassment. (EEOC v. Nichols, et al., No. 05-CV-6482, WD NY, 2010)

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