West Virginia companies worried about being stuck with the Workers’ Compensation liability of business entities they purchase assets from can breathe a sigh of relief as the result of a recent opinion released by the West Virginia Supreme Court of Appeals. On May 16, 2005, the Court released its opinion in IPI Inc. v. Burton which made more certain the situations when the Workers’ Compensation Commission may properly succeed the workers’ compensation liability from a company selling business assets to the company that purchased the assets. The Court interpreted the state law on successorship in a way that significantly reduces the risk that companies buying some but not all of the assets of other businesses will be hit with liability for past due workers’ compensation obligations of the business who sold the assets.
Specifically, the Court examined West Virginia Code § 23-2-14 which directs that an employer who acquires all or "substantially all" of another company’s assets also assumes the workers’ compensation liability of the company from whom the assets are acquired. The Code stipulates that if the transfer of assets affects the employer’s capacity to do business, there is a presumption that "substantially all" of the assets were transferred.
In the IPI case, the Court elaborated on the definition of the term "substantially all" and qualified the presumption regarding transfers affecting an employer’s capacity to do business. Previously, it was possible that a transfer of assets which fell well short of a company’s total assets might trigger successor liability simply because the transfer affected the employer’s capacity to do business. For example, the hearing examiner in IPI found that "substantially all" assets were transferred to the successor company although the assets acquired were approximately only 63 percent of the assets of its predecessor. However, the Supreme Court disagreed, limiting "substantially all" to what it actually means — when a company purchases "all but an insignificant amount" of employer’s assets for successor liability to attach for workers’ compensation purposes. The Court then shifted the focus of the inquiry from the effect on business to the amount of remaining assets. After finding that all but an insignificant amount of assets must be transferred, they indicated that the words "substantially all" mean more than a "substantial portion," "a majority of," or "most of."
The decision is positive for West Virginia businesses because it clarifies that "substantially all" means exactly what it says—all but an insignificant amount. In turn, this helps West Virginia businesses better evaluate the risks they face in acquiring some or all of the assets of another company and provides that West Virginia businesses will not be held liable for another company’s delinquent workers’ compensation obligations unless West Virginia businesses truly acquire "substantially all" of the company’s assets.
To read the opinion, visit the West Virginia Supreme Court of Appeals opinions page.
The author presents these materials with the understanding that the information provided is not legal advice. Due to the rapidly changing nature of the law, information contained in this publication may become outdated. Anyone using these materials should always research original sources of authority and update this information to ensure accuracy when dealing with a specific matter. No person should act or rely upon the information contained in this publication without seeking the advice of an attorney.
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