When does a company discontinue operations under Utah employment security law? DuMac, Inc. v. Board of Review of the Industrial Commission Explained

The Utah Court of Appeals recently addressed the meaning of “discontinued operations” under the Utah Employment Security Act in DuMac, Inc. v. Board of Review of the Industrial Commission. This case provides important guidance for businesses seeking successor employer status when acquiring assets from another company.

Background and Facts

DuMac, Inc., a printing and direct mail company, organized DuMac LLC and transferred all its equipment, assets, and employees to the new limited liability company. However, DuMac, Inc. remained in business after the reorganization, continuing to lease equipment to DuMac LLC, maintaining ownership interest in the LLC, and providing management and consulting services. When DuMac LLC sought successor employer status to retain DuMac, Inc.’s contribution rate history under the Utah Employment Security Act, the Industrial Commission denied the request.

Key Legal Issues

The central issue was whether DuMac, Inc. had “discontinued operations” as required by Utah Code § 35A-4-303(9)(a). Under this statute, a new employer qualifies for successor status if it acquires substantially all assets of another employer and “the other employer had discontinued operations upon the acquisition.” The implementing regulation defines discontinued operations as having “no continuing business activity” immediately at acquisition.

Court’s Analysis and Holding

Applying an intermediate standard of review, the court affirmed the Board’s decision. While acknowledging that DuMac LLC acquired substantially all of DuMac, Inc.’s assets, the court found that DuMac, Inc. failed to meet the second requirement because it continued business operations as a management and consulting company. The court emphasized that the plain statutory language requires complete discontinuation of operations, and DuMac, Inc.’s continued business activities disqualified DuMac LLC from successor status.

Practice Implications

This decision establishes that any continuing business activity by a predecessor employer will prevent successor employer qualification under Utah employment security law. Practitioners should advise clients seeking to preserve contribution rate history through business reorganizations that the predecessor entity must completely cease all operations, not merely transfer its primary business activities to the successor.