Unintended Consequences: Asset Purchasers and ERISA

In transactions where a buyer of assets is also hiring a large group of the seller’s employees who are needed to operate the purchased assets, the Asset Purchase Agreement (“APA”) will contain fairly detailed provisions explaining how the buyer will provide ERISA plans for the employees of the seller who become employees of the buyer. In some transactions, the buyer will require that all the seller’s employees who are hired by the buyer are simply treated as new hires under the buyer’s existing ERISA plans with no connection to the seller’s ERISA plan. In other transactions, the circumstances may require that the buyer adopt the seller’s existing ERISA plans for the seller’s employees who are hired by the buyer or, if not adopting the existing plans, the buyer may be required by the APA to put in place “comparable” plans. It is not unusual for an APA to also include some assurance that what ERISA plans are in place initially will not be changed (diminished) for a period of time.

It is also not uncommon that after the closing, the buyer fails to do exactly what the APA said it would do in terms of the ERISA plan covering the employees hired from the seller.

The Fifth Circuit Court of Appeals (which covers the states of Texas, Louisiana and Mississippi) has held that the provisions of an APA can effectively amend the terms of an ERISA plan even when the APA is silent on whether it is intended to be an amendment to an ERISA plan and even when the APA has the common boilerplate provision that its provisions are not intended to create rights or extend benefits to third parties. The Fifth Circuit cases are Sterling Chemicals v. Evans, 660 F.3d 862, (5th Cir. 2012) and Halliburton Co. Benefits Committee v. Graves, 463 F.3d 360 (5th Cir. 2006).

The Third Circuit (covering the states of Pennsylvania, New Jersey and Delaware) in its recent decision in Shaver v. Siemens Corp., ___F.3d ___, (3rd Cir. 2/29/2012) has indicated that it would be willing to accept the principal that provisions of an APA could amend an ERISA plan without explicitly stating that the APA provisions was intended to operate as an amendment. The First Circuit (covering Maine, Mass., Rhode Island and Puerto Rico) disagrees with the Fifth Circuit and would require that the APA clearly state that it is amending the ERISA plan.

The prudent drafter of the APA provisions on ERISA plans, which will be available to the former employees of the seller upon hire needs to be careful to accurately describe what type of benefit plan will be provided, that the plan document and not the APA is the only authoritative document on the benefits and eligibility for the benefits, that the APA is not intended to and does not, create, adopt or amend any ERISA plan nor is the APA intended to, nor does it, create any right to, or expectation of, any type, form or content of any ERISA plan of the buyer.


Posted by Carl H. Hellerstedt, Jr. Mr. Hellerstedt is Counsel with Spilman Thomas & Battle, PLLC. His primary areas of practice are labor and employment and ERISA law.

Carl H. Hellerstedt, Jr.


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