UNEMPLOYMENT INS. BENEFITS AND SUCCESSOR EMPLOYER: COMPETITIVE AUTO RAMP SERVICES, INC. V. KENTUCKY UNEMPLOYMENT COMMISSION (COA 4/27/2007)

COMPETITIVE AUTO RAMP SERVICES, INC. V. KENTUCKY UNEMPLOYMENT COMMISSION
EMPLOYMENT LAW:  Unemployment Insurance benefits
2005-CA-001952
PUBLISHED: REVERSING; THOMPSON
DATE RENDERED: 4/27/2007

The issue in this case is whether there is substantial evidence to find that Competitive Auto Ramp Services, Inc. (CARS) was a successor employer of Shelbyville Mixing Center, Inc. (Shelbyville) under KRS 341.540 and, as a result, would be liable for Shelbyville’s reserve unemployment account and subject to its tax rates.  COA held the evidence is insufficient to support the Commission’s decision and reversed.

CARS operates the Shelbyville Mixing Center which is a facility where railroad cars are loaded and unloaded, and contends that, absent any evidence of a connection, negotiation, or transaction between Shelbyville and CARS, it cannot be held to be a successor employing unit under KRS 341.540. We agree.

Any employing unit that succeeds to or acquires the organization, trade, or business, or substantially all of the assets of another employing unit which at the time of such succession or acquisition is a subject employer.  At the time that CARS’ liability was determined, KRS 341.540(1) provided that:

Any employing unit which succeeds to or acquires the organization, trade, or business of a subject employer shall assume the resources and liabilities of the predecessor’s reserve account, including interest, and shall continue the payment of all contributions and interest due under this chapter.

Our Supreme Court has held that in order to impose liability on the successor employer the plain language of KRS 341.540 and 787 KAR 1:300 requires that there be some “connection, negotiation, or transaction between the parties.” 

Merely continuing the same business, even in the same location, is not, by itself, sufficient to impose successor liability under the statute. What has occurred in the instant case is that a new enterprise has been undertaken with fresh assets to operate a similar business in the same location. This has had the effect of continuing the employment of the employees of the old enterprise, but that salutary end should not be burdened by saddling the new enterprise with the debts of the old enterprise. It is obvious from the factual background of this case that if a new entrepreneur entering the picture was concerned that a deficiency would be imposed, it would be relatively simple to defeat the claim of the state by interrupting the operation so as to avoid there being a continuous operation.

In the absence of evidence that there was a connection, negotiation, or transaction between the two employing units, as a matter of law, there can be no successor liability.

Since there is no evidence, either directly or indirectly, to support the Commission’s finding that there was any connection, negotiation, or transaction between CARS and Shelbyville, the COA did NOT address the Commission’s interpretation of the criteria set forth in 787 KAR 1:300.

Digested by Michael Stevens

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