Unsuccessful Successor: Court Finds Employer May Be Liable In EEOC Lawsuit For Its Predecessor's Conduct Under Title VII

Seyfarth Synopsis: A Maryland federal district court recently found that a successor employer could be liable in an EEOC lawsuit for its predecessor's alleged employment discrimination. For employers, this decision is a cautionary tale — the lesson being that liability for claims of employment discrimination can extend beyond the entity alleged to have been responsible for the conduct to reach a successor entity that played no role in the alleged bad acts. In light of this decision, due diligence in corporate acquisitions is more important than ever. An entity acquiring not only assets but also employees must understand the risks of liability regarding the workforce it is inheriting. As the Court decided here, no matter how explicit the disclaimer of liability, a successor may still be liable in an EEOC lawsuit for the discriminatory acts of its predecessor.

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In EEOC v. Phase 2 Invs. Inc., Case No. 17-CV-2463, 2018 U.S. Dist. LEXIS 65719 (D. Md. April 17, 2018), a Maryland district court denied motions to dismiss and for summary judgment brought by a successor employer and the predecessor employer, finding that the Court not only had jurisdiction over the claims against the successor employer, but also that the successor employer could be held liable for the discrimination allegations levied against its predecessor. What's more, the Court found that although the charging parties were undocumented workers, such status did not prevent the EEOC from pursuing Title VII claims on their behalf, contrary to the argument advanced by the predecessor employer. However, the Court recognized the precarious nature of the relief it could grant under such circumstances, as back pay and injunctive relief (i.e., re-hiring) are unavailable. Nevertheless, the Court stated that the Defendants would not get off "scot-free" if the allegations were proven true.

Case Background

In EEOC v. Phase 2, Invs., Inc., the employee charging parties worked for Maritime Autowash, Inc. ("Maritime," and later became Phase 2 Investments). Maritime operated a car wash in Edgewater, Maryland. The charging parties alleged that they and other Hispanic employees were subject to harassment and discrimination while working for Maritime, and that they were fired after they complained to management about the alleged mistreatment. Notably, several months prior to their termination, an audit by U.S. Immigration and Customs Enforcement revealed that thirty-nine Maritime employees...

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