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What is a predecessor-successor relationship?
(1) This section applies only to those individuals and organizations that meet the definition of an employer contained in RCW 50.04.080
(2) A predecessor-successor relationship exists when a transfer occurs and one business (successor) acquires all or part of another business (predecessor). It may arise from the transfer of operating assets including, but not limited to, the transfer of one or more employees from a predecessor to a successor. It may also arise from an internal reorganization of affiliated companies. A predecessor-successor relationship also exists when an employer transfers its business to another employer, and both employers are at the time of transfer under substantially common ownership, management or control. Whether or not a predecessor-successor relationship (including a "partial predecessor" or "partial successor" relationship) exists depends on the totality of the circumstances.
(3) Predecessor. An employer may be a "predecessor," including a "full predecessor" or "partial predecessor," if, during any calendar year, it transfers any of the following to another individual or organization:
(a) All or part of its operating assets as defined in subsection (5) of this section; or
(b) A separate unit or branch of its trade or business.
(4) Successor. A "successor" may be either a "full successor" or a "partial successor." An employer may be a "full successor" if, during any calendar year, it acquires substantially all of a predecessor employer's operating assets. It may be a "partial successor" if, during any calendar year, it acquires:
(a) Part of a predecessor employer's operating assets; or
(b) A separate unit or branch of a predecessor employer's trade or business.
(5) Operating assets. "Operating assets" include the resources used in the normal course of business to produce operating income. They may include resources that are real or personal, and tangible or intangible. Examples include land, buildings, machinery, equipment, stock of goods, merchandise, fixtures, employees, or goodwill. "Goodwill" includes the value of a trade or business based on expected continued customer patronage due to its name, reputation, or any other factor.
(6) Transfer of assets. Transfers from a predecessor to a successor employer may occur by sale, lease, gift, or any legal process, except those listed in subsection (13) of this section.
(7) Simultaneous acquisition. For purposes of successor simultaneous acquisition, the term "simultaneous" means all transfers that resulted from acquiring or reorganizing the business, beginning when the acquisition started and ending when the primary unit is transferred.
(8) Common ownership, management and control. Common ownership, common management and common control must be established when the transfer of a business occurs. In determining whether common ownership, management and control exist, the department may consider:
(a) Ownership-legal owner for tax and liability purposes;
(b) Familial relationships;
(d) Organized structure;
(e) Day-to-day operations;
(f) Assets and liabilities;
(g) Stated business purposes; and
(h) Other information pertinent to the inquiry.
The employer must meet all three elements, common ownership, common management and common control, for the exemption to apply.
(9) Substantially common ownership, management or control. In determining whether substantially common ownership, management or control exists, the department may consider the extent of commonality and similarity between employers based on:
(a) Ownership-legal owner for tax and liability purposes;
(b) Familial relationships;
(d) Corporate officers;
(e) Organized structure;
(f) Day-to-day operations;
(g) Assets and liabilities;
(h) Stated business purposes; and
(i) Other information pertinent to the inquiry.
This standard is met when any common ownership, management or control exists between the employers.
(10) Substantially similar businesses. Substantially similar business are businesses:
(a) In which the products sold or services provided exhibit a high degree of likeness but may be less than identical; and
(b) Which could reasonably be in competition with one another to provide a substantially similar service or a substantially similar product.
(11) A significant purpose of the transfer of business must be more than an incidental purpose, but may be one of many purposes. Evidence of a significant purpose of the transfer of a business may be shown by:
(a) Business records, such as corporate minutes or other documents;
(b) Statements by owners or officers of the business, or by an outside party, such as an accounting firm or tax advisor, made contemporaneous with the transfer; or
(c) Other credible evidence of the employer's intent.
Employers must provide the department evidence of the purpose of the transfer no later than thirty days after the date of transfer.
(12) Factors. Factors should be weighed instead of merely adding up the number of individual factors. No single factor is necessarily conclusive. Some of the factors which the department may consider as favoring establishment of a predecessor-successor (including a "full successor" or "partial successor") relationship are:
(a) Whether the employers are in the same or a like business (e.g., providing similar or comparable goods or services or serving the same market);
(b) Whether the asset(s) transferred constitute a substantial or key portion of similar assets for either the predecessor or successor;
(c) Whether the assets were transferred directly and not through an independent third party;
(d) Whether multiple types of assets (e.g., employees, real property, equipment, goodwill) transferred;
(e) Whether a significant number or significant group of employees transferred between employers;
(f) Whether the assets transferred at the same time or in a connected sequence, as opposed to several independent transfers;
(g) Whether the business name of the first employer continued or was used in some way by the second employer;
(h) Whether the second employer retained or attempted to retain customers of the first employer;
(i) Whether there was relative continuity and not a significant lapse in time between the operations of the first and second employers;
(j) Whether there was continuity of management between employers;
(k) Whether the employers shared one or more of the same or related owners;
(l) Whether documents, such as a contract or corporate minutes, show the sale or transfer of a business or a portion of a business; and
(m) Whether other factors indicate that a predecessor-successor relationship exists.
(13) Exceptions. A predecessor-successor relationship will not exist:
(a) For the purposes of chapter 50.24
RCW (payment of taxes), when the property is acquired through court proceedings, including bankruptcies, to enforce a lien, security interest, judgment, or repossession under a security agreement unless the court specifies otherwise;
(b) For the purposes of chapter 50.29
RCW (experience rating):
(i) When any four consecutive quarters, one of which includes the acquisition date, pass without reportable employment by the predecessor, successor, or a combination of both; or
(ii) When a significant purpose of the transfer of a business or its operating assets is for the employer to move or expand an existing business, or for an employer to establish a substantially similar business under common ownership, management and control.
(14) Burden of proof.
The department has the burden to prove by a preponderance of the evidence that a business is the successor or partial successor to a predecessor business. However, if a business fails to respond to requests for information necessary to determine a predecessor-successor relationship, the department may meet its burden by applying RCW 50.12.080
to determine the necessary facts.
[Statutory Authority: RCW 50.12.010
. WSR 13-09-010, § 192-350-010, filed 4/5/13, effective 5/6/13; WSR 12-23-087, § 192-350-010, filed 11/20/12, effective 12/21/12; WSR 10-23-064, § 192-350-010, filed 11/12/10, effective 12/13/10. Statutory Authority: RCW 50.12.010
, and 50.29.064
. WSR 07-23-131, § 192-350-010, filed 11/21/07, effective 1/1/08.]