Seller outside sales reps agreed to arbitration. Buyer purchased seller’s assets. Buyer hired sales reps who later sued buyer for overtime. Buyer can’t use seller arbitration provision to force sales reps into arbitration.
M&A Stories
February 15, 2023
Introduction
In this blog post, we discuss a legal case involving a buyer and former sales representatives of a seller. Despite the seller’s arbitration provision in their employment agreement, the court ruled that it did not apply to the sales reps’ lawsuit against the buyer. This situation highlights an important lesson for business buyers.
Background
The seller involved in this case is FTD, a floral wire service company. Two outside sales representatives working for the seller had signed an employment agreement with a binding arbitration provision. Later, the seller filed for bankruptcy in 2019 and sold its assets to the buyer, who subsequently hired the sales reps. Initially, the reps worked outside the office, but due to the pandemic, they had to work remotely from their homes.
The lawsuit
After leaving the buyer, the sales reps filed an overtime lawsuit against the buyer in a federal district court in Chicago. Under federal wage and hour laws, the sales reps were not entitled to overtime when working outside the buyer’s office. However, they claimed that they were entitled to overtime when working remotely from their homes.
The Arbitration Request: The buyer requested the court to enforce the seller’s arbitration provision and order the sales reps into binding arbitration. However, the court denied this request because the sales reps had only agreed to arbitration for claims against the seller, not the buyer.
Court Ruling: The court noted that if the seller’s arbitration provision had included the buyer as a successor or assignee, it might have been binding on the sales reps. However, the provision specifically referred to the “Company” as the seller and did not extend to its successors, assigns, heirs, or transferees.
See Virgilio v. FTD, LLC, Case No. 1:22-CV-02628, United States District Court, N.D. Illinois, Eastern Division, (January 10, 2023).
Conclusion
This case serves as a reminder for buyers to ensure that sales representatives sign new employment agreements containing binding arbitration provisions when acquiring a company. Simply relying on the seller’s arbitration provision may not be sufficient to resolve future disputes with employees after an acquisition.
By John McCauley: I write about recent legal problems of buyer and sellers of small businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my books: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles and Selling Assets of a Small Business: Problems Taken From Recent Legal Battles
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