Dealers' Choice - Media Communication Group

COUNSELOR’S CORNERAvoiding Liability forEmployee Issues inDealership AcquisitionsBy Stephen J. Roppolo and Joseph W. Gagnon, Fisher & Phillips LLP, Houston, TX“This article is the opinion of the author and is not endorsed by TADA.A dealer may wish to seek their own legal counsel.”With economic uncertainty continuing to face the retail automotive industry,many financially stable dealers have had opportunities to expand theirholdings by adding additional franchises.potential liabilities. Many buyers stopthere, but prior to closing, a prudent buyerwill ask the following questions as well:• Are there any pending job offers, particularlyto management-level personnel?• Have employees made internal complaintsof significance, whether pursuantto an “open-door” policy or an alternativedispute resolution program? Arethere any open investigations into allegationsof harassment or discrimination?• What do the dealership’s pay planslook like? Should they be rewritten inorder to avoid untenable compensationarrangements or vague and ambiguouslanguage?• Has the seller issued an employee handbookto its personnel? Is it consistentwith policies that the buyer intends toutilize?• Are there job descriptions setting forththe requirements of each position in theseller’s dealership?• How many employees are on leave, andwhat are their expected return-to-workdates?• Are the seller’s defined benefit pensionplans properly funded? If the seller isself-insured for employee health benefits,or is a non-subscriber under Texas’workers compensation laws, what arethe plans’ outstanding liabilities?• Is there a collective bargaining agreement,perhaps with a union representingservice technicians?• Are there employment contracts withany current or former employees? Whatabout non-compete agreements or otherrestrictive covenants? Are any formeremployees violating their non-competeobligations?While financing remains tight, industryanalysts report there aredeals to be had, assuming buyerand seller can agree on a price. Withoutquestion, when the economy finally turnsthe corner, dealership acquisitions will beon the rise.Unfortunately, the parties to a dealershipsales transaction often skip over criticaldue diligence steps relating to the acquireddealership’s workforce. Instead oftaking the time to address employee issuespresented in virtually every dealershipacquisition, buyers and sellers often raceto closing or become distracted by otheracquisition issues, resulting in unresolvedlegal problems that could have easily beenaddressed prior to sale.These issues are or particular concernto the buyer. Successor employers in anasset purchase often find themselves liablefor employment claims asserted againstthe predecessor employer. Thus, it is vitalto know as much as possible about pendingor threatened discrimination, harassmentor retaliation claims brought or threatenedby employees so that the risk of loss canbe assessed and a value placed on thoseThese are only a few of the seriousemployment-related issues facing a buyer.As you might expect, these issues cannotbe addressed in the hallway outside theconference room thirty minutes before theclosing. Of course, adequate indemnificationlanguage should be included in closingdocuments to avoid being stuck withanother dealer’s legal problems, but it isimportant to remember that many employmentlawsuits seek not only damages andattorney’s fees, but also injunctive reliefor reinstatement. Indemnification agreementsmust be well-drafted to account forthese kinds of circumstances.16