Under the National Labor Relations Act ("NLRA"), when an employer purchases the assets of a unionized company, the purchaser will be deemed to be a successor employer, and have an obligation to recognize and bargain with the union representing the seller's employees if there is substantial continuity in operations and a majority of the new employer's workforce is hired from the employees of the seller. As a general rule, a successor employer normally retains the right to set the initial terms and conditions of employment under which the employees of the predecessor will be hired. NLRB v. Burns Int'l Security Services, 406 U.S. 272, 284 (1972). In other words, a successor employer may have to recognize and bargain with the union representing the predecessor's employees, but ordinarily it will not be bound by the terms of the collective bargaining agreement between the predecessor and the union. There is an exception to this general rule in circumstances where "it is perfectly clear that the new employer plans to retain all of the employees" in the existing bargaining unit. Burns, 406 U.S. at 294-95. A Burns "perfectly clear" successor is not permitted to set initial terms and conditions of employment unilaterally, but must bargain with the union before making any changes to the existing contract conditions.
In a recent decision, the U.S. Court of Appeals for the D.C. Circuit rejected the NLRB's expanding interpretation of the "perfectly clear" exception under Burns, and reiterated that the analysis of a successor employer's bargaining obligation starts with the presumption that the successor enjoys the right to set its own terms and conditions of employment. S&F Market Street Healthcare, LLC v. NLRB, 570 F.3d 354 (D.C. Cir. 2009). Because the D.C. Circuit has nationwide jurisdiction over appeals from NLRB decisions, the decision in S&F provides some needed comfort and clarity for all employers contemplating an asset purchase that involves a unionized facility.
The employer in S&F acquired a nursing home operated by another company. The seller's employees were represented by a union. Prior to taking over the facility, the purchaser distributed employment applications to the seller's employees, and conducted interviews of those interested in continuing employment with the new owner. Those applications advised applicants that any offer of employment would be contingent upon passing a pre-employment physical and drug test, and noted that the purchaser intended "to implement significant operational changes." During the job interviews, applicants also were told that any employment would be at-will, would be temporary, lasting no more than 90 days, and would be subject to the terms in the company's employee handbook. Employees who were hired also were required to sign an agreement to arbitrate any disputes related to, inter alia, the termination of their employment. The overwhelming majority of the 120 employees initially hired by the new company came from the predecessor's employees.
The union representing the predecessor's employees demanded that the new company recognize and bargain with it over the terms of a new contract. The purchaser refused, and the union filed a number of unfair labor practice charges. An administrative law judge found that the purchaser violated the NLRA by refusing to recognize the union, but rejected the claim that the purchaser was a "perfectly clear" successor under Burns. On appeal, the NLRB held that the purchaser was a "perfectly clear" successor, and therefore was bound by the terms of the predecessor's contract because it had not announced its intent to alter the "core terms and conditions of employment" of the predecessor's employees.
The D.C. Circuit rejected the Board's interpretation of the "perfectly clear" exception. In doing so, the Court of Appeals emphasized that the "perfectly clear" exception is intended to be a narrow one, intended only to "prevent an employer from inducing possibly adverse reliance on the part of employees it misled or lulled into not looking for other work." 570 F.3d at 359. While the purchaser in S&F did not specifically tell the predecessor's employees that they would be working under "different core terms and conditions of employment," it did tell them that employment would be at-will, they would be governed by the new company's employee handbook, and would be subject to a different arbitration procedure. According to the Court, that was more than enough to alert those employees that they should expect changes from the terms and conditions they worked under prior to the transaction. As the Court summarized, "the Board presumed the predecessor's terms and conditions must remain in effect unless the successor employer specifically announced it will change 'core' terms and conditions. Thus does the exception in Burns swallow the rule. Under the proper standard, S&F clearly comes within the protection of the rule, rather than the straightjacket of the exception." Id. at 361-62.
The D.C. Circuit's decision in S&F reigns in the NLRB's recent tendency to apply an overreaching interpretation of the Burns "perfectly clear" rule, and offers protection to employers in asset purchase transactions. Nonetheless, the best advice for any employer contemplating an asset purchase involving a unionized facility remains to make clear its intent to set the initial terms and conditions of employment for all employees to be hired to staff that facility.
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