When a purchase of a business takes place in Ohio, the purchaser often overlooks the fact that it will assume the sellers’ workers’ compensation claims experience either in part or in whole. The Bureau of Workers’ Compensation ("BWC") has taken a fairly strict line in combining and transferring coverage to purchasers.
When a new owner wholly assumes the former employer’s business, the BWC transfers all of the employer’s claims experience to the purchaser. If the new owner purchases a portion of the business, only a part of the former employer’s experience will be transferred. Even if the parties enter into asset purchase agreements, which demonstrate that the entities are not undergoing an acquisition or merger, the BWC frequently determines that the purchaser is a successor to the predecessor employer’s risk. As a result, the Bureau of Workers’ Compensation transfers any and all existing and future liabilities and/or credits of the predecessor employer. As a result, the purchaser may find themselves obtaining an undesirable claims experience. Further, should the predecessor business fail to report payroll, fail to pay its premiums and/or penalties, these liabilities are transferred to the successor. As a result, a purchaser may inherit significant workers’ compensation costs.
The BWC transfers a predecessor’s obligations regardless of whether the predecessor’s transfer to the successor was voluntary, through an asset purchase agreement, or through an intermediary bank or receivership. This is contrary to the concept of successor liability arising out of other types of contracts.
Therefore, it is critical for purchasers to evaluate a predecessor business’ workers’ compensation rates as part of the due diligence in undertaking a purchase of another business in whole or in part.