United States: Blurred Lines: Under New "Perfectly Clear" Standard, NLRB Finds That Seller's Conduct Prohibits Asset Purchaser From Setting Initial Terms

Seyfarth Synopsis: In yet another pro-union, results-driven decision, the NLRB announces a new approach to evaluating whether an asset purchaser has forfeited its right to set initial terms and conditions when offering employment to a seller's employees.

In Nexeo Solutions, LLC, 364 NLRB No. 44 (July 18, 2016), a split panel of the NLRB found that Nexeo Solutions lost its right to set initial terms and conditions of employment for the employees of Ashland Distribution's Fairfield, California facility, which Nexeo acquired in an asset purchase. The employees were drivers, material handlers, and warehouse employees who had been represented by the Teamsters for approximately 18 years.

Under well-settled law, a purchaser is not typically bound by the collective bargaining agreement governing the seller's employees, and instead the purchaser may set its own initial terms and conditions of employment. See NLRB v. Burns Security Services, 406 U.S. 272 (1972). The Supreme Court did, however, carve out an exception to the general rule when "it is perfectly clear that the new employer plans to retain all of the employees in the unit..." Id. at 294-95. These purchasers are known as "perfectly clear successors." The NLRB then interpreted and expanded on the obligations of perfectly clear successors in Spruce Up Corp., 209 NLRB 194 (1974), enf'd. per curiam 529 F.2d 516 (4th Cir. 1975).

Under Spruce Up, a purchaser loses the right to set initial terms when "the new employer has either actively or, by tacit inference, misled employees into believing they would all be retained without change in their wages, hours, or conditions of employment..." or "where the new employer...has failed to clearly announce its intent to establish a new set of conditions prior to inviting former employees to accept employment." Id. at 195.

The Union and amici, including the SEIU and the AFL-CIO, asked that the Board overturn Spruce Up as inconsistent with the Supreme Court's decision in Burns. Rather than overrule Spruce Up, however, the Board instead stretched the perfectly clear successor analysis so that the facts of the case at hand would fit within the expanded meaning of the term.

In justifying its decision, the Board relied on the parties' November 10, 2010 Purchase and Sale Agreement stating that the employees would be offered "(i) a base salary or wages no less favorable than those provided immediately prior to the Closing Date and (ii) other employee benefits, variable pay, incentive or bonus opportunities...substantially comparable in the aggregate" to those provided by the seller. Nexeo, 364 NLRB at 2 The Board also focused on the seller's communications, rather than the buyer's, with the employees. For example:

  • On November 7, 2010 an email from seller's president was delivered via hard copy to the employees stating, "[W]e anticipate approximately 2,000 Ashland Distribution employees and dedicated resource group and supply chain partners will transfer to the new business." Id.
  • On November 8, 2010 an employee Q&A was posted on the intranet and the bulletin board at the Ashland facility stating, "Under the terms of the agreement, for at least 18 months following closing, the newly independent company is required to provide, to each transferred employee, base salary and wages that are no less favorable than those provided prior to closing; and other employee benefits that are substantially comparable in the aggregate to compensation and benefits as of January 1, 2011." Id. at 3.

The Board's reliance on these communications completely disregarded the buyer's later statements, which made it clear that any continued employment would be under new and different terms and conditions. The purchaser's statements included the following:

  • On February 16, 2011, the purchaser met with the union business agent and provided a draft copy of an offer letter to be distributed to the employees. The letter stated, "[W]e think you should know that Nexeo Solutions has not agreed to assume any of Ashland's collective bargaining agreements. We have chosen not to adopt, as initial terms and conditions of employment, any of the provisions contained in any current or expired collective bargaining agreement..." Id. at 4.
  • On February 17, 2011, the purchaser mailed the offer letters to the employees along with a document called "Your New Benefits at a Glance," which detailed the changes to the employee's health insurance, life insurance, and retirement benefits should they accept the offer. Id.

In relying so heavily only on the seller's statements, the majority blurred the identity of the speaker and the time at which the buyer's responsibility for communication kicks in. It held that the seller's statements to the employees may be imputed to the purchaser for purposes of the perfectly clear successor analysis, a stark departure from the Board's previous requirement that a perfectly clear successor have engaged in a misrepresentation to the employees in order to lose its right to set initial terms. Now, the purchaser's obligation to notify the union of a change in terms and conditions may be triggered simultaneously with the seller's effects bargaining obligation.

Member Miscimarra, dissenting, noted that "The new affirmative duty created by my colleagues is especially unfortunate because it will predictably have consequences–however unintended they may be–that will generate greater uncertainty for, and impose greater hardship on, employees and unions involved in a sale, transfer or other conveyance of operations." Id. at 23.

As a result, Miscimarra noted that "[M]any potential successor employers will negotiate strict limitations on a predecessor's ability to convey any information to its employees regarding their potential employment with the successor. Nothing in the NLRA requires purchasers to disclose their employment plans to the seller, and–in view of my colleagues' decision–purchaser would be well advised to prohibit sellers from communicating anything to their employees and unions regarding the purchaser's employment-related plans." Id.

The Union has petitioned for the case to be reviewed by the Ninth Circuit. The employer has requested reconsideration by the Board. It is unclear whether the Ninth Circuit Court of Appeals will push back against the Board's extraordinary encroachment on the buyer's ability to set initial terms.

In the meantime, potential successors contemplating asset purchases from unionized sellers should:

  • Carefully review purchase agreements for any language that could trigger a perfectly clear successor obligation under the Board's new standard including obligations to provide similar or comparable wages and benefits to the seller's employees.
  • Negotiate strict limitations on the seller's ability to communicate the terms of the deal to its employees or the ramifications of the deal on their continued employment.
  • Recognize that although the seller has an effects bargaining obligation, the purchaser may want to consider insisting that any communications by the seller to the employees be coupled with affirmations that any continued employment with the buyer will be under different terms and conditions of employment.
  • Potentially require that a decision on the initial terms and conditions of employment be made prior to execution of a purchase agreement including the terms of any communications regarding those initial terms.

Ultimately, employers will continue to face the difficult balancing required in order to achieve a smooth sale while assuaging employee anxiety against the potential inability to set initial terms of employment. For many purchasers, the inability to set initial terms and conditions of employment could destroy the viability of the deal itself, a result much worse for the employees created by the NLRB's overreach.

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
 
In association with
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
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.