Successor Liability for Employment Discrimination Claims under Illinois Law

On March 11, 2019, the Illinois Appellate Court, First District, held that under Illinois law, a successor business entity may be liable for an employment discrimination claim against an employer that transferred its assets to the successor in order to avoid liability for the employment discrimination claim.  Illinois Department of Human Rights v. Oakridge Nursing & Rehab Center, et al.,  2019 IL App (1st) 170806, March 11, 2019.  The employee filed an age and disability discrimination charge (the "Charge") against his employer under the Illinois Human Rights Act ("IHRA").  After the employer received notice of the Charge, it transferred substantially all of its assets to a related but separate business entity.  Subsequently, a judgment in the amount of $30,000 was awarded by the Illinois Human Rights Commission to the employee and against the employer, which the employer failed to pay.

The Illinois Department of Human Rights ("IDHR") filed an enforcement action against the employer as well as the successor entity (the "Successor LLC"), to which the employer's assets had been transferred.  The IDHR contended that the Successor LLC should be responsible for the liability of the employer because the employer had transferred substantially all of its assets to the Successor LLC without adequate consideration for the fraudulent purpose of escaping potential liability in connection with the Charge.  The employer transferred its assets after it received notice of the Charge, which raised the threat of a lawsuit and the possibility of a judgment against the employer.  Consequently, the employer had a legal obligation to not dissipate its assets.  The circuit court disagreed and ruled against the IDHR, but the Appellate Court reversed the decision of the circuit court.  Noting that the question of successor liability in the employment discrimination context is a question of first impression under Illinois law, the Appellate Court ruled that "Illinois courts shall recognize successor liability for violations of the IHRA."  The Appellate Court also stated that "Illinois courts shall rely on the federal doctrine of successor corporate liability where the underlying claim stems from a charge of employment discrimination in violation of the IHRA."  The transfer met the relevant factors--the transfer of substantially all of the employer's assets for no consideration after notice of the potential liability, the employer's inability to satisfy the judgment as a result of the transfer, and the continuity of operations between the employer and the related Successor LLC.  Therefore, the Successor LLC is liable for the judgment against the employer, even though the Successor LLC was not involved in the underlying alleged employment discrimination that lead to the judgment.