Hunton Employment & Labor Perspectives

In a 3-1 decision released last week, the National Labor Relations Board reversed decades of precedent regarding a successor employer’s bargaining obligations following the purchase of an entity with a unionized workforce. The Board’s decision in Ridgewood Health Care Center significantly reined in the application of the “perfectly clear successor” doctrine, which requires a successor employer to maintain the status quo of its predecessor employer’s terms and conditions of employment.

Pursuant to the Supreme Court’s decision in NLRB v. Burns Security Services, the National Labor Relations Board applies a two-part test when determining whether an employer is a “successor” employer under the National Labor Relations Act, and therefore has a duty to bargain with the union representing the employees of its predecessor. Generally, even if an employer is a successor employer under this two-part test, it is still free to set the initial terms and conditions of employment for bargaining unit employees prior to bargaining with the union, and therefore is not required to abide by the terms and conditions of employment set forth in the predecessor employer’s collective bargaining agreement.

However, the Supreme Court carved out a narrow exception to this test in the Burns decision, whereby a successor employer is bound by the terms of the predecessor employer’s collective bargaining agreement if it is determined that the successor employer is a perfectly clear successor. In the Burns decision, a successor employer is deemed a perfectly clear successor if the employer retains, or would have retained absent discriminatory motives, all or substantially all of its predecessor’s bargaining unit employees.

In Ridgewood Health Care Center, the Board expressly overruled subsequent interpretations of the perfectly clear successor standard, which it contends impermissibly expanded the scope of this narrow exception. Specifically, the Board overruled its 1996 decision in Galloway School Lines, wherein it determined that the perfectly clear successor standard also requires a successor employer to bargain over the initial terms and conditions of employment “where, although the employer’s plan is to retain a few number of predecessor employees, it is still evident that the union’s majority status will continue.”

Returning to the application of the narrow exception set forth in Burns, the Board determined that the successor employer in Ridgewood Heath Care Center was not a perfectly clear successor since only sixty-five of the eighty-three bargaining unit members applied for jobs, and only fifty-one of them received offers. Although the Board found that at least four bargaining unit members did not receive offers of employment due to anti-union discriminatory motives, this refusal “created no uncertainty whether the [successor employer] planned to retain all or substantially all of the predecessor’s unit employees.”

The Board’s return to the narrow application of the perfectly clear successor doctrine will undoubtedly benefit successor employers in escaping perfectly clear successor liability, and thereby provide them much needed flexibility following an acquisition.