Asset buyer not liable for race discrimination claim for not hiring former seller employee because the former seller employee never had an employment relationship with buyer

This is the story of the purchase of a car dealership by a buyer who was sued for not hiring one of seller’s employees. Seller wanted buyer to take care of seller’s employees. Buyer agreed to include a provision in the asset purchase agreement. In the words of the court:

Under the terms of the Asset Purchase Agreement (“APA”) signed by … (seller and buyer), “[o]n the Closing Date, … (seller) … will transition the employment of all … (seller’s) … employees with respect to the Business, … in a manner approved in advance by … (buyer) … According to the APA, “Buyer shall hire all of Seller’s former employees . . . in accordance with Buyer’s standard operating and human resources procedures.” … The APA defined the employees of … (seller) … hired by … (buyer)… as “Retained Employees” and explained that “(buyer) … shall have the right, but not the obligation, to employ any or all of Seller’s employees related to the Business, and shall have no obligation to retain any Retained Employees for a specific time period following Closing.”

Tim was a manager for seller’s dealership and he was not hired by buyer. He sued buyer accusing buyer of discriminating against him because he was black.  The court found for the buyer finding that Tim could only sue for racial discrimination if he had been an employee of buyer; and he never was an employee of buyer:

Under the clear terms of the APA … (Tim) … did not become an employee of … (buyer) … automatically upon the sale closing. … Therefore, there is no genuine dispute of fact as to whether … (Tim) … was ever employed by … (buyer) …, and there is no need for resolution of this issue by a jury. Because the Court so finds, … (Tim’s) … discriminatory discharge claim fails as a matter of law and summary judgment will be granted for … (buyer) ….

This United States District Court case from Maryland is referred to as Mance v. Owings Mills Autos, LLC, Civil No. JKB-17-2222, United States District Court, D. Maryland (April 19, 2018).

Comment. The seller of a business, in an asset sale, often wants to take care of his or her employees. Seller often asks for a provision in the asset purchase agreement that requires the buyer to hire all seller’s employees for a period after the closing. The buyer often agrees.

However, a seller employee not hired by the buyer probably has no claim against the buyer for breach of this provision if there is a “no third-party beneficiary clause” in the asset purchase agreement that says something like this: “nothing in this Agreement shall confer any rights upon any person or entity other than the parties hereto and their respective heirs, successors and permitted assigns.” That means a former seller employee not hired by buyer can’t sue buyer if the former seller employee is not hired  by buyer; because the former seller employee was not a party to the asset purchase agreement.


By John McCauley: I help people start, grow, buy and sell their businesses.



Telephone:      714 273-6291

Posted in hiring seller's employees, third party beneficiary clause

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