Things Clients Want to Know:
Q: I want to buy a company, is it important to look at its workers’ compensation liability?
A: One would think that mergers and acquisitions would have no impact on workers’ compensation law, however while companies are engaging in due diligence, how many times are they also scrutinizing the workers’ compensation programs of their potential acquisition? Any time one employer succeeds another employer in the operation of a business in whole, or in part, it is the acquisition/merger or purchase/sale it’s the successor’s responsibility to:
1. Notify the BWC of the Succession
2. Preserve the predecessor employer’s payroll records for five years preceding the date of the succession.
It is within the sole discretion of the Ohio Bureau of Workers’ Compensation to adopt rules establishing “the rates to be applied where one employer takes over the occupations or industry of another or where an employer first makes application for state insurance. ” O.R.C. 4123.32(D). With the sole discretion of rate setting, given to the BWC, it is very difficult for an employer to assert control over adopting the better risk.
In addition, when a merger of a self-insured entity and a state fund entity takes place, the rules require the self-insured employer to “buy out” the State Fund insured liability of the merging entity. Without question, these costs can become very significant in the post-merger/ post-sale climate and need to be considered in the initial negotiations of any merger and acquisition.