United States: Employers Must Exercise Care to Avoid Being Considered a "Perfectly Clear" Successor Under Recent Board Decisions

Executive Summary: In 2016, the National Labor Relations Board (NLRB) issued several significant decisions with legal and practical implications for employers acquiring unionized operations. Employers acquiring unionized operations must take extra precautions if they wish to set initial terms and conditions of employment for newly acquired/hired employees.

Background:

The NLRB's successorship doctrine states that a new employer has an obligation to bargain with the current union when the new employer acquires a unionized business and continues to operate the business in a substantially unchanged manner as its predecessor, along with retaining the predecessor's employees as a majority of the workforce. A "successor" employer is not bound by the substantive terms of an existing union agreement negotiated by the predecessor and is ordinarily free to set initial terms of employment unilaterally (before bargaining with the union) unless the successor employer makes it "perfectly clear" that it plans to hire a majority of its employees from the existing bargaining unit. A "perfectly clear" successor is prohibited from changing the existing terms and conditions of employment before bargaining with the union over a new contract.       

To avoid being a "perfectly clear" successor, the NLRB, in 1974, held that an employer acquiring a unionized operation must indicate new employment terms prior to or simultaneously with its invitation to the workforce to accept employment. However, the Board recently established that an employer acquiring a unionized operation cannot avoid becoming a "perfectly clear" successor by discriminating against former bargaining unit employees when it refuses to hire these employees simply in an attempt to avoid becoming a "perfectly clear" successor.

Current Developments:

The current NLRB has been very active in interpreting and applying the successorship doctrine.  These cases illustrate the many issues employers face when dealing with successorship circumstances.  On July 18, 2016, the Board found that the purchaser of a unionized distribution center in an assets transaction was a "perfectly clear" successor with an obligation to bargain with the union before imposing initial terms and conditions of employment. The Board's majority relied on language in the purchase agreement and communications to the employees by a representative of the seller. Nexeo Solutions, LLC, 364 NLRB No. 44 (2016)

Under the terms of the purchase agreement in Nexeo, the purchaser agreed to offer employment to all of the seller's current employees. The employees were informed in an email from the seller that the employees would be transferred to the new business. The Board's majority ruled that these factors made it clear from the outset that the purchaser intended to retain all of the seller's employees. The purchaser argued, and the dissent agreed, that they were not responsible for communications made by a different party, the seller, to the seller's employees; however, the Board rejected this argument and concluded that the purchaser exercised control in these communications and did not repudiate them.

On May 17, 2016, the Board held that Adams & Associates was bound to bargain with its predecessor's union because the company led current employees to believe that they would be hired, without indicating that these new employees would need to accept different terms and conditions of employment. As a result, the employer had a duty to bargain with the union before making any changes. Adams & Associates, Inc., 363 NLRB No. 193 (2016) An Adams executive told current employees that he was "99 percent" sure that current employees would have jobs with Adams, but he failed to mention Adams was not offering the same terms and conditions of employment. The Board held that these comments made it "perfectly clear" that Adams & Associates intended to be a successor employer with a duty to consult the union before changing employment terms and conditions.

On August 26, 2016, the Board determined Creative Vision Resources, LLC, (Creative Vision) was a "perfectly clear" successor employer and as such violated Sections 8(a)(5) and (1) of the Act by failing to give the union notice or an opportunity to bargain before imposing new terms and conditions on employees. Before taking over the new operations, Creative Vision distributed applications. Roughly twenty employees who received applications were told that there would be changes to the terms and conditions of employment. Approximately fifty other employees who received applications were not informed of this decision. The majority concluded that the successor did not clearly indicate its intent to establish new conditions, thus ruling that Creative Visions was a "perfectly clear" successor employer obligated to notify the union or allow the union an opportunity to bargain before changing terms and conditions. Creative Vision Resources, LLC, 364 NLRB No. 91 (2016)

In its decision regarding Emerald Green Building Services, LLC (Emerald Green), the Board determined that Emerald Green was a successor employer and that it violated the anti-discrimination provisions [Sections 8(a)(3) and (1)] of the Act when it refused to hire some of the predecessor's employees in an attempt to avoid becoming a successor employer. Emerald Green Building Services, LLC, 364 NLRB No. 109 (2016) The Board also found that Emerald Green violated Section 8(a)(5) of the Act when it unilaterally changed terms and conditions of employment without notifying the union or giving it the opportunity to collectively bargain.

Lastly, in a case involving Executive Order No. 13495 (worker retention/first right of refusal), the NLRB held that Data Monitor Systems, Inc. (Data) was not a "perfectly clear" successor and did not violate the NLRA. The Board based this determination on the fact that Data distributed applications to the predecessor's employees which expressly stressed that the status of the predecessor's employees was that of applicants, who were not guaranteed employment by simply completing an application. During a one-month transition period, an executive of Data told a union representative that Data: 1) would not be hiring the same number of employees; 2) would only hire the best applicants; and 3) would not use seniority in deciding which employees to retain. Further, the Board determined that, in the context of this case, the Executive Order did not compel a finding of a "perfectly clear" status.  Data Monitor Systems, Inc., 364 NLRB No. 4 (2016)

Employers' Bottom Line:

Employers must be careful to review and control what is said in purchase agreements, bid proposals, and other sale/purchase or proposal related documents concerning the potential employment of the seller's or predecessor's employees. The potential successor employer will want to prohibit the seller from communicating anything to its employees and unions regarding the purchaser's employment-related plans. Further, potential successors must train their supervisors, managers, and executives with respect to discussing the plans of the new employer regarding the employment of the predecessor's employees. Finally, timing is everything.  Employees and unions must be told of any changes in initial terms and conditions prior to or simultaneously with the employer's offer of employment.

Why is this important?  Setting initial terms and conditions of employment gives the new employer control over its costs while it bargains with its new union for a new labor agreement. Initial contracts often take a long time to negotiate. When the employer sets the initial terms it gets bargaining leverage throughout the negotiations.  In government contract settings it is often critical for the successor employer to be able to implement initial changes in terms and conditions in order to meet its cost projections for the performance of the government contract. Being on the wrong side of this analysis can have a significant financial impact on the company.

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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