United States: Buyer Beware – Continuing Its Controversial Changes, NLRB Increases The Price Tag Of A Successor's Unlawful Failure To Hire Its Predecessor's Employees

On September 30, 2014, the National Labor Relations Board overruled established precedent once again. The Board's decision enhanced the liability to which a successor employer is exposed when it fails to hire employees of its predecessor to avoid recognizing their union representative.  In Pressroom Cleaners Inc., Decision and Order, Case No. 34-CA-071823 (Sept. 30, 2014), the Board held a successor found guilty of such a scheme, in addition to being required to recognize and bargain with the union, had to: (1) restore the "status quo" by putting in place the employment terms of its predecessor, i.e., those spelled out in their old labor agreement, until it bargained to an agreement or impasse with the union; and (2) pay the employees it unlawfully failed to hire back pay and benefits under the monetary terms under which they worked for the predecessor. 

Saying it was simply returning to the Board's "traditional approach" to remedying unfair labor practices of this kind, the majority, made up of the three Democrat appointees, overruled the Board's 2006 decision in Planned Building Services, 347 NLRB 670 (2006), a case giving a successor found to have unlawfully avoided successorship status a way to reduce its liability.  The way Planned Building Services held a successor could reduce its liability was by proving in a compliance proceeding that, had it not unlawfully avoided becoming a successor, it would have bargained to an agreement or impasse with the union on less generous monetary terms. 

While it may not seem surprising the Obama Board overruled a case decided by the Bush Board, Planned Building Services is not a Bush Board decision practitioners expected this Board to have in its crosshairs.  Planned Building Services was a rarity in this age of partisanship and polarization at the Board – it was a unanimous  decision in which then Democrat Members Liebman and Walsh, without so much as a whisper of disagreement, joined with the Republican majority.

The Board's Decision

In Pressroom Cleaners, all five members of the Board found, as had the administrative law judge (ALJ), that the new employer had "discriminatorily refused to hire six [of its predecessor's] employees because of their union affiliation," and that the predecessor's employees "would have constituted the majority of [the] unit employees absent [the employer's] discriminatory refusals to hire." Decision and Order, Case No. 34-CA-071823 (Sept. 30, 2014) at *1.  Based upon those findings, all five members, in agreement again with the ALJ, found that the employer was a statutory successor with an obligation to recognize and bargain with the union, and that, in refusing to honor that obligation, the employer had unlawfully implemented new employment terms different from those of its predecessor. 

It was on the issue of the appropriate remedy where the Board's decision took a controversial turn.  The ALJ applied the rule adopted by the Board in Planned Building Services, finding that the employer's liability "for both its unlawful discrimination in hiring and its unlawful unilateral changes" was subject to its "demonstrating in a compliance proceeding that, had it lawfully bargained with the Union, it would have, at some identifiable time, lawfully imposed or reached agreement on" terms less favorable than those of the predecessor.

The rule the Board adopted in Planned Building Services was designed to align the remedy in a successorship-based refusal to hire case against three basic legal principles:

  • The Board does not have authority to issue punitive remedies;
  • The Board may not impose substantive contract terms on parties; and
  • The Board may not require a successor employer to adopt the contract terms set forth in its predecessor's collective bargaining agreement.

In the eight years since it was decided, Planned Building Services has been deemed by the Board (until now), as well as federal courts of appeal, to properly balance these legal principles.  Indeed, four separate courts of appeal have followed Planned Building Services, and no courts have refused to do so.  See W & M Properties of Conn., Inc. v. NLRB, 514 F.3d 1341, 1346-48 (2008);   NLRB v. JLL Rest., Inc., 325 F. App'x 577, 579 (9th Cir. 2009); Muffley ex rel. NLRB v. Voith Indus. Servs., Inc., 551 F. App'x 825, 831 (6th Cir. 2014); TCB Sys., Inc. v. NLRB, 448 F. App'x 993, 997 (11th Cir. 2011)  Despite the support the rule in Planned Building Services has received over the years, the Board in Pressroom Cleaners concluded the rule was "based upon a misunderstanding of the Board's traditional remedy in successorship-avoidance cases, inconsistent with other Board precedent, and flawed as a matter of policy."

The majority justified its finding, in part, on a non-controversial principle that begs the question – that in exercising its "broad discretionary power to devise remedies that effectuate the Act's policies," the Board is guided by the principle that remedial orders should place those harmed by an unfair labor practice in, as nearly as possible, the same position they would have been but for the unfair labor practice.  Relying upon State Distributing, 282 NLRB 1048 (1987), the majority noted that, in fashioning a make-whole remedy in successorship-based failure to hire cases, allowing the successor to prove it would not have accepted the predecessor's monetary terms and would have reached impasse ignores the possibility the parties may have reached a compromise. 

As such, so the majority said, the rule in Planned Building Services was flawed because a determination whether impasse or a compromise would have been reached would amount to conjecture.  Ironically, the rule requiring the predecessor's employment terms to be used to measure the successor's liability, which the Board reaffirmed, is itself based upon conjecture – the fiction that, but for its discriminatory mindset, the successor would have hired the predecessor's employees under the predecessor's employment terms and, like a perfectly clear successor, been required to bargain to an agreement or impasse before changing the terms.    

The majority also found the Planned Building Services rule to be unfair because it gave a wrongdoing employer an opportunity to prove bargaining would have resulted in less favorable terms than the predecessor had in place but did not give the union an equal opportunity to prove bargaining would have resulted in more favorable terms.  In expressing that conclusion, however, the majority did not explain how, as a practical matter, that distinction made the rule unfair.  In point of fact, the rule in Planned Building Services only came into play in cases in which the successor adopted less favorable terms than the predecessor.  Those terms tethered to reality a successor's proof it would have negotiated something less than the predecessor had in place if the successor had met its bargaining obligation from the outset.  The same could not be said for a claim by a union that it would have negotiated more favorable terms.         

Lastly, the majority justified throwing out the Planned Building Services rule because, in its view, the rule "prolongs litigation by greatly complicating the compliance phase and discouraging meaningful bargaining."  The majority, however, offered no empirical data to support its conclusion.  Imagining the effect the rule might have, the majority speculated that, if compliance proceedings were litigated while parties were bargaining, an employer would have "an incentive to push hard for a quick impasse, and then use that as evidence in the compliance proceeding to prove that it would have reached impasse quickly had it bargained lawfully from the beginning." Of course, any such incentive might be quelled by the risk that a quick impasse might just trigger a strike, as well as a bad faith bargaining charge. 

The net effect of Pressroom Cleaners is that a wrongdoing successor will no longer be able to escape the full brunt of a back pay remedy under the predecessor's monetary terms over the period from the date it takes over a business until it bargains to an agreement or impasse with the union.  Given that Board litigation can take years, the back pay owed by a successor could be substantial – in Pressroom, the successor's liability dates back to December 2011, almost three years, and assuming neither has occurred, it will run until an agreement or impasse is reached.    

As Members Miscimarra and Johnson explained in their dissent, Pressroom Cleaners permits the Board to order exactly the type of remedy the Act does not allow: a punitive one derived from contract terms of a predecessor that the law prohibits the Board from imposing upon a successor.  This change allows remedies that go well beyond making employees whole by requiring a successor to pay back pay over a period far longer than it would have taken to negotiate a first contract, under employment terms it did not, and would not, accept.    

The Decision's Implications

The employer in Pressroom Cleaners, if it seeks review of the Board's decision, would likely find a receptive court in the District of Columbia Court of Appeals.  Previously, in Capital Cleaning Contractors v. NLRB, 147 F.3d 999 (D.C. Cir. 1998), a case on which the Board relied in Planned Building Services, that court rejected the Board's so-called traditional approach, finding it to be both punitive and to unlawfully impose a predecessor's contract terms on a successor. Meanwhile, the Board and its ALJs will continue to follow Pressroom Cleaners in all proceedings before the Board.  That may not seem very significant, at first blush, because most successors do not get into this type of trouble – successorship-based refusal to hire cases, while often highly publicized by the Board, are not all that common.  All future successor employers, however, need to take heed of the decision because, although the Board did not mention it, the decision necessarily will also be applied in so-called "perfectly clear successor" cases. 

Under current Board law, as articulated long ago in Spruce Up Corp., 209 NLRB 194, 195 (1974), enfd. 529 F.2d 516 (4th Cir. 1975), a perfectly clear successor is one that either actively or, by tacit inference, misleads its predecessor's employees to believe they will all be retained without change to their employment terms, or that fails "to clearly announce its intent to establish a new set of conditions prior to inviting former employees to accept employment."  A perfectly clear successor forfeits its right to set initial employment terms, and must keep in place the employment terms of its predecessor (i.e., those set forth in its labor agreement) until it bargains to an agreement or impasse with the union. 

Unless they are careful in any messaging to a predecessor's employees, all successors are at risk of being alleged to be a perfectly clear successor and to have unlawfully implemented initial employment terms different from those of the predecessor.  And that risk may soon become heightened, as the Board's General Counsel has made it known he intends in the near future to ask the Board to overrule Spruce Up and adopt a new perfectly clear successor test capturing any successor that commits, as many do, to offer positions to its predecessor's workforce. 

Why is this significant?  Many successors will only agree to purchase a business or assume a contract if they can lower labor costs.  Take for instance, a successor that decides to acquire the assets of an employer whose employees participate in an underfunded multi-employer defined benefit pension plan.  It may only go forward with the deal if it can get out of the plan and require the seller to be responsible for any withdrawal liability.  But it may also need the experienced workforce of the seller, exposing it to the risk of becoming a perfectly clear successor, if it is not careful.  Under Pressroom Cleaners, if the successor moved the employees out of the plan and were proven to be a perfectly clear successor, it would be required to restore the status quo by moving the employees back into the plan, retroactive to the day it hired them.  And it would have no escape from keeping them in the plan until it negotiated to an agreement or impasse after the Board ruled.  That would be true notwithstanding the successor's recognition of its duty to recognize and bargain with the union – any bargaining that preceded the Board's decision could potentially be for naught.  

As this example illustrates, denying a perfectly clear successor the opportunity to prove it would not have agreed to its predecessor's employment terms, had it not unilaterally set its own, could result in a serious injustice, and the prospect of that occurring may be a deal-changer.  In particular, a rule imposing an immediate bargaining obligation upon a successor that extends offers of employment to its predecessor's employees would likely nix deals that would otherwise go forward or have an adverse effect on the continuity of employment, outcomes that are not in the interest of employers, unions or employees alike.    

Pressroom Cleaners may, on its face, appear to be "only" a remedies case, but it is much more than that.  It is further evidence of the activist agenda of the current Board and reflects this activism is likely to continue.  Stay tuned.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions