United States: Spruce Up Survives, But A Successor's First Communication To A Predecessor's Employees Is More Critical Than Ever

Last Updated: September 13 2016
Article by Tom Dowd

In Paragon Systems, Inc., 364 NLRB No. 75 (2016), the National Labor Relations Board declined the General Counsel's request to overturn its 42-year-old decision in Spruce Up Corp., 209 NLRB 194, 195 (1974), enfd. per curiam 529 F.2d 516 (4th Cir. 1975). Spruce Up held that a successor employer that plans to offer employment to its predecessor's union-represented employees is free to set its own starting terms and conditions of employment unilaterally, provided it does not : (1) actively, or by tacit inference, mislead employees into believing they will be retained without changes in wages, hours or conditions of employment; or (2) fail to clearly announce its intent to establish new employment terms prior to inviting those employees to accept employment. A series of recent Board decisions show that Spruce Up is not likely to be overturned, but that asset purchasers that wish to set their own initial terms and conditions of employment need to pay attention to the timing and substance of their first communication to the predecessor's employees.

The Legal Landscape

The U.S. Supreme Court ruled long ago that, when a successor employer takes over a predecessor's unionized operations, the successor is not obligated to adopt the predecessor's union contract, nor is the successor obligated to keep the predecessor's terms and conditions of employment in place when the successor starts operations. NLRB v. Burns Security Services, 406 U.S. 272 (1972). Instead, the new employer can set its own initial terms and conditions (including new wages and benefits), and then bargain with the predecessor's union if a majority of the predecessor's employees choose to accept employment under the successor's terms.

Burns identified a narrow exception for situations in which it is "perfectly clear" that the successor plans to retain all of the predecessor's employees. In such cases, the Court said there was a duty to "consult" with the union before setting those initial terms and conditions. In Spruce Up, the Board clarified that, if the successor announces starting terms and conditions that are different from those of the predecessor, then it is not "perfectly clear" that a successor will hire a majority of the prior workforce. This is true because, even if the successor wants the employees to accept the offer, the employer cannot know that a majority of the workers will do so under conditions that are different from what the predecessor provided. The Board cautioned, however, that an employer would lose this unilateral ability if it communicated an intent to offer its predecessor's employees jobs in a way that misled the employees or their union to believe there would be no changes or that failed to put them on notice changes would be forthcoming, and later announced new terms and conditions at a point when it was too late for those incumbents to seek other employment opportunities.

Efforts to Overturn Spruce Up

Recently, the Board has issued a number of decisions expanding the type of conduct that constitutes "misleading" employees about whether changes in conditions are going to occur.1 The Board's decisions have been so expansive that the narrow "perfectly clear" exception noted by the Supreme Court in Burns now threatens to swallow the fundamental principle established in Burns – that successors "ordinarily" are free to set their own initial terms and conditions of operation.

The Board's General Counsel has sought to go further by stockpiling successor cases over the past few years and asking the Board to overturn Spruce Up. As such, the General Counsel has argued that a successor must consult with the predecessor's union about starting conditions any time the successor's conduct shows that the successor "intends" to hire the prior workforce.

There had been recent signals from the Board that the General Counsel's request to overturn Spruce Up was a bridge too far. In GVS Properties, L.L.C., 362 NLRB No. 194 (2015), two Board Members held that a city statute (which required successors to retain the predecessor's employees for 90 days) created an immediate bargaining obligation with the predecessor's union, but when the dissenting Board Members asserted that the other two Board Members were trying to undermine Spruce Up and the "perfectly clear successor" doctrine, the two Board Members denied they were doing so in "the instant case." Then in Nexeo Solutions, L.L.C., 364 NLRB No. 44 (2016), the same two Board Members found it "unnecessary to consider the requests" to overrule Spruce Up because their decision treated the employer as a perfectly clear successor based on their conclusion that the employer did not quickly enough communicate to the predecessor's employees that the successor's starting terms of employment would be different from the predecessor's terms.

Paragon Systems

Paragon Systems, Inc. seemed to provide an excellent opportunity for the General Counsel's efforts to overturn Spruce Up. Paragon had taken over a federal contract to provide guard services at a federal building where the predecessor's work force had union representation. As a federal contractor, Paragon had a legal obligation under Executive Order 13495 to offer employment to the predecessor's union-represented employees on a first-refusal basis. Paragon also had a legal obligation under the Service Contract Act (SCA) to provide the incumbent employees with wage rates and fringe benefit amounts that were at least equal in value to the wage rates and fringe benefit amounts that were paid by the predecessor. So, while Paragon might set up a variety of starting terms and conditions that were different from those of its predecessor, all guards would be receiving offers of employment at the predecessor's wage and fringe benefit levels. The General Counsel argued this meant Paragon was a perfectly clear successor who knew that a majority of the prior workforce would accept employment offers.

In response, Paragon pointed out that its offer letters to the incumbent guards expressly notified those guards that Paragon would be setting its own starting terms and conditions of employment, and the letters set forth some of the ways in which Paragon's terms would be different from its predecessor. To avoid any assertion it had misled incumbents about what it planned to do, Paragon had refrained from any pre-offer letter communications with the incumbents, except for a short, posted memo informing guards that Paragon had been awarded the contract and that Paragon would be hosting a job fair to discuss employment. The memo asked guards to fill out applications at Paragon's website in advance of the job fair. The applications would allow Paragon to prepare personalized offer letters and other materials for the job fair.

The administrative law judge (ALJ) found that Paragon's memo about filling out applications was the equivalent of an offer of employment. The ALJ agreed with the General Counsel's assertion that the SCA and Executive Order requirements automatically made Paragon a perfectly clear successor. He also argued at length that Spruce Up was wrongly decided and should be overturned.

The three Members rejected the ALJ's conclusions and unanimously found that Paragon's memo announcing the job fair was not an invitation to accept employment and that Paragon's status as a federal contractor did not mean Paragon was automatically a perfectly clear successor. The Members relied on Spruce Up in support of their decision, but declined to throw their full weight behind the case, saying in a footnote: "[w]e decline to rule on the General Counsel's request [to overturn Spruce Up] in this case" (emphasis added), holding open the possibility that they could do so in a different set of circumstances. Realistically, however, the General Counsel's failure to prevail under such favorable circumstances in Paragon Systems demonstrates that the Board is unlikely to overturn Spruce Up.

What Lessons Should Employers Learn From These Cases?

While the essential principle in Spruce Up appears likely to survive, the case has been significantly weakened and the Board remains receptive to creating as many exceptions as possible to the fundamental legal principle announced in Spruce Up. As such, employers should anticipate that the General Counsel will remain vigilant in looking for flaws in the way successors communicate with the prior workforce, and that the standard for whether an existing employee has been "misled" about initial job terms is likely to be continually rebalanced in favor of the predecessor's employees.

If an employer wishes to establish its own terms and conditions of employment following an asset purchase, the critical takeaway from the Board's recent decisions is that a successor's FIRST communication of any type to a predecessor's workforce should clearly and unambiguously inform the predecessor's employees that:

  1. The successor is not adopting the predecessor's union contract.
  2. The successor is going to be setting its own initial terms and conditions of employment.
  3. The successor's initial terms and conditions of employment are going to be substantially different from the terms and conditions that were in place under the predecessor.
  4. No predecessor employee should presume that any particular practice, procedure or term of employment used by the predecessor will continue unchanged under the successor's leadership and policies.
  5. The predecessor is not authorized to make any statements on the successor's behalf about what the successor will or will not do in connection with setting initial terms and conditions of employment, and the predecessor's employees should not rely on any statements or information that they have heard from any source other than the successor.
  6. If the successor is taking over a federal contract, then the successor should add that the successor will meet its legal obligation by offering nothing lower than the wage rates and base fringe benefit amount paid by its predecessor, but the successor should emphasize: (a) that the base fringe benefit amount may be provided in a manner different from that of the predecessor; and (b) that continuation of prior wage rates and fringe benefit amounts is not a signal that any other term or condition of employment will remain unchanged.

Footnotes

1 See, e.g., Adams & Associates, Inc., 363 NLRB No. 193 (2016) and Creative Vision Resources, LLC, 364 NLRB No. 91 (2016).

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.