United States: NLRB: Successor Employer Determination Must Be Made When Buyer Takes Control of Business

The National Labor Relations Board's ("NLRB" or "Board") successorship doctrine obligates a purchaser/new employer in an asset transaction to recognize and bargain with the union representing a seller's employees if the new employer: (i) continues its predecessor's business in substantially unchanged form, and (ii) hires predecessor employees as a majority of its post-closing workforce. GVS Properties, LLC, 362 NLRB No. 194 (Aug. 27, 2015); NLRB v. Burns Int'l Security Servs., 406 U.S. 272 (1972). However, a new employer will not be required to abide by its predecessor's collective bargaining agreement if it makes clear to the union and the employees, either prior to, or at the time of, offering employment to seller's employees, that it does not intend to be bound by the existing collective bargaining agreement. Under these circumstances, new employers may establish initial terms and conditions of employment that differ from the existing collective bargaining agreement and then bargain with the union for a new agreement. See Burns, 406 U.S. at 273.

In GVS Properties, LLC, a New York City ordinance required a new building owner and employer to retain its predecessor's building service employees for 90 days after closing. The Board found that GVS was a successor employer because it made a "conscious decision" to purchase and manage the buildings with knowledge of the legal requirement that it must retain the employees for 90 days after closing. As a successor, the Board found that GVS had a duty to recognize and bargain with the union.

A Board majority rejected the argument that successor status should be determined after the statutorily-required, 90-day retention period expired. GVS lawfully terminated some of its predecessor's employees after the 90-day retention period and at that time its workforce was not comprised of a majority of the predecessor's employees. If the successorship determination were made at the end of the 90 days, GVS would not have been required to recognize or bargain with the union. Instead, the Board found that whether GVS maintained a sufficient continuity of workforce to become a successor should be determined at the time it "assume[d] control over the predecessor's business and hire[d] the predecessor's employees." 362 NLRB No. 194, at 1. Therefore, the Board held that GVS violated Sections 8(a)(5) and (1) of the NLRA by refusing to bargain with the union representing its predecessor's employees during the employee retention period mandated by local law. The Board found the fact that the buyer was required by law to retain seller's employees was immaterial to the successorship determination.

Rejecting the dissenting Board member's argument that the conscious decision to purchase real estate should not be conflated with the separate decision to retain a majority of seller's workforce, the two-member majority held that GVS made a "conscious decision to ... hire a majority of its employees from [its] predecessor," because it acted with "actual or constructive knowledge" that local law required it to do so. The Board found that: "[W]here, as here, the decision to purchase a business inevitably leads to a requirement that employees be retained for a certain period of time, those decisions are in effect one and the same." Id. at 3 n.13.

The Board majority also dismissed the notion that its broad holding may expose local retention statutes to preemption challenges, noting that such possibilities did not provide a "sufficient reason ... to carve out a special exception in our successorship jurisprudence." Id. at 7.

In reaching its decision, the Board relied on longstanding precedent holding that buyer-imposed employee probationary periods do not affect a successorship determination and that such determinations should be made prior to the end of the probationary period. Similarly, it cited to cases in which the buyer was contractually obligated to retain seller's employees for a certain period of time after closing. The Board concluded that this case presented "no reason to depart from [its] precedent concerning probationary periods and compelled retention simply because the probationary period and the employee retention itself was required by a worker retention statute, rather than by the employer alone or by contract." Id. at 5.

On September 2, 2015, GVS petitioned the United States Court of Appeals for the District of Columbia for review of the Board's decision.

The GVS Properties decision should put potential buyers in asset transactions on alert regarding the potential of becoming a successor employer as well as an obligation to assume a predecessor's collective bargaining agreement—both when there is a local law or contract requiring employee retention after closing, and when there is not. Based on the Board's decision, buyers in an asset purchase should assume that they will become a successor at the time the transaction closes if a majority of their workforce at that time is comprised of its predecessor's employees (regardless of whether the buyer was required to hire its predecessor's employees by statute or contract). In stock transactions, the employing entity typically remains the same and the collective bargaining agreement will remain in effect between the existing signatories making a successorship analysis in that context unnecessary.

If a buyer is a successor, i.e., it has an obligation to recognize and bargain with the union representing the predecessor's employees, it should always make clear to the applicable union and the employees prior to the time, or at the time, it makes offers of employment whether it intends to be bound by the predecessor's collective bargaining agreement. If a buyer misleads the union or the employees into believing they will be retained under the same terms and conditions of employment, the buyer will be required to assume the existing collective bargaining agreement and will lose its right as a successor to set its own initial terms and conditions of employment.

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.

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