Anyone engaged in the buying and selling of businesses should be aware that acquiring a company that has been cited for health and safety violations could result in the assessment of increased penalties against the successor entity because of the prior owner’s violations.
The Occupational Safety and Health Act of 1970 allows for the assessment of increased penalties against employers who repeatedly violate the standards promulgated under the Act. An employer may be cited for a so-called “repeat violation” if, at the time the subsequent violation occurs, the employer was previously cited for “the same or substantially similar condition or hazard” and the prior citation has become a final order of the Occupational Safety and Health Review Commission. Importantly, a violation can be categorized as “repeat” even if the first citation was issued to the predecessor company and not the successor entity. Repeat violations carry a fine of up to $165,514 per violation— about ten times that of a first-time violation.
Entities should take care to identify all health and safety violations during the due diligence process and swiftly implement measures to correct any outstanding violations. While subsequent entities should implement measures to ensure that health and safety violations do not occur at all, as an extra level of protection, there are actions that a successor entity can take to decrease the likelihood that any violations that occur after acquisition are categorized as repeat.
Repeat liability only applies to successor entities when there is “substantial continuity” between the two entities. In assessing whether there is “substantial continuity” between entities, the following factors are considered:
- Continuity of the nature of the business, including the products and services offered and the customers served;
- Continuity of the jobs and working conditions; and
- Continuity of personnel who specifically control decisions related to safety and health.
Successor entities can implement a number of measures to decrease the likelihood that a court would find “substantial continuity” between the entities. For example, successor entities can implement facility upgrades, improve working conditions, formalize training programs, and increase oversight over health and safety programs. These measures will not only improve workplace safety for employees but could potentially save the successor entity hundreds of thousands of dollars if any future violations are considered first-time violations rather than repeat violations.
