Employers Will Benefit From NLRB Decision Overruling Precedent That Implicated Successor Employer Bargaining Obligations

An employer that acquires a unionized company and discriminatorily avoids hiring some but not “all” or “substantially all” of the former company’s employees in order to avoid a bargaining obligation with a union can set its own initial terms and conditions of employment without first consulting or bargaining with the union, according to the National Labor Relations Board (NLRB) in its Ridgewood Health Care Center, 367 NLRB No. 110 decision. The decision, issued April 2, 2019, overruled precedent that’s been in place since 1996. The employer has an obligation to recognize and bargain with the union moving forward, though.

In determining a company’s obligations when acquiring a unionized facility, the NLRB will find that an employer is a “successor” employer with an obligation to recognize and bargain with the union if there is a substantial continuity of business operations and a continuity in the workforce, according to NLRB v. Burns Security Services, 406 U.S. 272 (1972).

There is a substantial continuity of business operations when the new employer conducts essentially the same business as the former company. If a majority of the employees hired are former employees of the predecessor company, the NLRB will find that there is a continuity in the workforce. Despite having an obligation to bargain with the union, generally the new owners are free to set initial terms and conditions of employment for the newly acquired facility without first having to bargain with the union.

The exception to this rule is when the new owners plan to hire or retain all of the employees from the former company, which is known as the “perfectly clear successor” exception because it is perfectly clear that the new employer plans to retain all of the employees. In this case, the new owners have an obligation to bargain with the union before fixing the terms and conditions of employment. Where things get complicated is when the NLRB finds that the new employer discriminated in its hiring practices against the former employer’s employees to avoid having to deal with the union.

In Love’s Barbeque, 245 NLRB 78 (1979), the NLRB addressed the situation where the new owners’ hiring practices created ambiguity as to whether they would have hired all or substantially all of the former employees had it not discriminated in hiring in order to avoid being a successor. The NLRB held that if the new employer created this ambiguity it would apply the perfectly clear successor exception and impose a duty to bargain with the union prior to setting initial terms and conditions of employment.

Before Ridgewood, if an employer discriminatorily failed to hire some but not “all” or “substantially all” of the former employees in order to avoid a bargaining obligation, the NLRB would also order the company to bargain with the union prior to setting its initial terms and conditions of employment, according to Galloway School Lines, 321 NLRB 1422 (1996).

In the Ridgewood case, a new owner of a nursing facility informed employees that it planned to hire “99.9%” of employees and adhere to the previous owner’s collective bargaining agreement. The new owner then changed course, refusing to bargain with the union, or to adhere to the collective bargaining agreement and hired only 49 former employees out of a total of 101 employees. The new owner asked several former employees during interviews if they were union members and denied employment to four former union members.

Having found that the company was a successor, pursuant to Burns, with an obligation to recognize the union, the NLRB next considered whether the company had an obligation to bargain prior to setting different initial terms and conditions of employment for employees of the new operations. Overruling Galloway, the NLRB held that the company was not obligated to bargain with the union prior to setting initial terms and conditions of employment.

In doing so, the NLRB found that Galloway erroneously extended the limits of the narrow “perfectly clear successor” exception by requiring new employers to bargain with a union prior to setting its initial terms and conditions of employment when the new employer discriminatorily failed to hire some, but not “all” of the former employees in order to avoid a bargaining obligation.

Here, the NLRB reasoned that there was no ambiguity about whether the new employer planned to retain all or substantially all of the former employees, and as an ordinary Burns successor it was free to set initial employment terms for its employees.

Employers will benefit from the Ridgewood decision’s limitations on the “perfectly clear successor” exception and a successor employer’s ability to set initial terms and conditions of employment when acquiring unionized facilities. However, this case illustrates the importance for new employers acquiring businesses with a unionized workforce to be clear in their communications with employees about their intent in hiring the former employees of the business and any relevant changes to operations.