Labor Cost Risks in Branded Consumer Goods: Litigation Exposure and Operational Vulnerability in the Wake of First Brands' Collapse

The collapse of First Brands Group, LLC in 2025 has exposed a critical vulnerability in the branded consumer goods sector: the intersection of opaque financial practices and escalating labor cost risks. As the company's $11.6 billion in liabilities unraveled, it became evident that its aggressive acquisition strategy, funded by private credit markets, created a precarious structure prone to both operational and legal shocks, as reported by the Los Angeles Times. While the specific lawsuit by security guards over overtime pay remains unverified in public records, the broader context of labor law enforcement and litigation trends in the sector underscores a systemic risk that investors cannot ignore.

The First Brands Case: A Cautionary Tale of Financial and Legal Entanglement

First Brands' financial architecture was built on off-balance-sheet financing and a debt-to-EBITDA ratio exceeding 10x, a level that rendered it highly susceptible to liquidity crises, according to BDC Reporter. Its bankruptcy filing in September 2025, which included multiple affiliated entities, revealed not only financial mismanagement but also a pattern of legal disputes, including the voluntarily dismissed case Lumileds v. First Brands. While this case centered on a $9.6 million payment dispute under a stock purchase agreement, it highlights the broader legal fragility of firms with complex capital structures.

The absence of a confirmed 2025 overtime pay lawsuit against First Brands does not diminish the sector's exposure to labor-related litigation. Historical precedents, such as the $130 million settlement by G4S Secure Solutions in 2019 for unpaid meal breaks, are documented in a list of top wage-and-hour settlements, demonstrating that security firms-often integral to consumer goods supply chains-are particularly vulnerable to wage and hour violations. First Brands' own financial collapse may have exacerbated such risks, as cash-strapped companies are more likely to cut corners on labor compliance.

Systemic Risks: From Private Credit to Labor Law Enforcement

The leveraged loan market, which funded First Brands' expansion, has drawn comparisons to the 2008 subprime crisis due to its lack of transparency, according to Benzinga. Invoice-based financing and supply chain finance structures allowed the company to obscure its true debt burden, a practice now under scrutiny by regulators, as noted by Sedgwick. This opacity is compounded by the Financial Accounting Standards Board's (FASB) current rules, which do not require companies to classify supply chain finance obligations as liabilities, an issue explored by IRMI.

Meanwhile, labor law enforcement has grown more stringent. The Supreme Court's 2024 ruling in Cambila, Jr. and Samad v. Seabren Security Agency affirmed that security guards are entitled to overtime pay even under "broken shift" schedules-a decision discussed by Gaboogle. For example, Allied Universal Security Services and Protection Plus Inc. faced fines exceeding $1.1 million and $28,000 respectively for misclassifying employees, as reported in a LinkedIn article. These cases illustrate how operational vulnerabilities-such as misclassification or inadequate scheduling practices-can quickly escalate into costly litigation.

Policy Shifts and Investor Implications

A new federal provision, the "No Tax on Overtime" rule, effective in 2025, adds another layer of complexity. Employees can now deduct up to $12,500 annually in overtime premiums from their taxable income, provided their earnings do not exceed $150,000, per Eldorado Insurance. While this policy aims to incentivize overtime work, it could inadvertently increase labor costs for firms reliant on security personnel, particularly if they fail to adjust compensation strategies.

Investors must also consider the erosion of the "exclusive remedy" principle in workers' compensation. Recent court decisions in states like California and Kentucky have allowed injured workers to bypass compensation systems and pursue civil litigation for higher payouts, a trend discussed by ConsumerShield. This trend, driven by social inflation and "nuclear verdicts," raises the specter of unlimited liability for employers, especially in cases involving workplace safety violations.

Conclusion: A Call for Prudent Due Diligence

The First Brands saga is a microcosm of the broader risks facing the branded consumer goods sector. Its financial collapse, legal entanglements, and the evolving regulatory landscape underscore the need for investors to scrutinize not only balance sheets but also labor compliance practices. As wage and hour lawsuits become more frequent and severe, companies with opaque structures or lax operational standards will face disproportionate exposure.

For firms in this sector, the path forward requires transparency in both financial reporting and labor practices. Investors, in turn, must demand rigorous due diligence, particularly in industries where labor costs are a significant portion of operating expenses. The lessons from First Brands are clear: in an era of heightened legal and regulatory scrutiny, operational vulnerability is no longer a peripheral risk-it is a central concern.