Federal Court Recognizes Successor Liability Under Maryland Wage Payment Law

Addressing a question not yet answered by the state courts, a Maryland federal court found that successor liability may exist for purposes of the Maryland Wage Payment and Collection Law (MWPCL) in the context of an asset purchase.

In Hencin v. Avant Diagnostics, LLC, a company purchased “substantially all” of the assets of the employer and, in the Asset Purchase Agreement, assumed some of the employer’s liabilities, expressly including payroll accruals, deferred compensation, paid time off balances, and expense reimbursement. Two employees were subsequently terminated and sued the new company for the compensation and other monies owed as a successor to their employer under the MWPCL.

The U.S. District Court for the District of Maryland noted that, as the state Court of Special Appeals has stated, the MWPCL does not define “successor” nor have any court decisions analyzed successor liability under the law. However, the Court of Special Appeals did recognize that an exception to the general rule that a successor is not liable for its predecessor’s legal obligations exists when there is an express or implied agreement to assume the liabilities. The federal court found that was the case here, where the purchaser specifically agreed to assume the liabilities for these various forms of compensation in the Asset Purchase Agreement.

On a side note, the federal court also found that expense reimbursements and unused paid time off may constitute wages under the MWPCL. The issue of expense reimbursements was addressed in an earlier case. As for the paid time off, under the MWPCL, “accrued leave” is included as compensation unless certain conditions are met, including expressly stating in the leave policy that it will not be paid out upon termination.