A Perfectly Clear Win for Successor Employers in Recent NLRB Decision
April 18, 2019
In a decision earlier this month, the National Labor Relations Board reversed precedent on successor employer bargaining obligations. In Ridgewood Health Care Center (367 NLRB No.110), the Board limited the circumstances in which a successor employer of a unionized workforce forfeits its right to set initial terms and conditions of employment for its employees.
At the outset, the Board agreed with the administrative law judge that Ridgewood Health Care Center Inc. and Ridgewood Health Services Inc. were required to recognize the United Steelworkers Union that had bargained with the predecessor employer. Under the two-part test established by the United States Supreme Court in NLRB v. Burns Security Services, 406 U.S. 272 (1972), the Administrative Law Judge determined that the entities were a single employer successor with bargaining obligations.
On appeal, the Board did not dispute that the business operations remained largely the same, which satisfied the first part of the Burns test. However, the second prong, whether there is substantial continuity in the workforce, was not met, according to the Board, even though Ridgewood unlawfully discriminated against four of the predecessor employer’s union employees because of their union status. Had Ridgewood hired these four employees, it would have employed a majority of the predecessor workforce, triggering its obligation to bargain with the union. This decision upends several decades of Board precedent, as explained next.
The Supreme Court’s decision in NLRB v. Burns Security Services marks the beginning of the “perfectly clear” successor doctrine. In Burns, the Court held that a successor employer is generally free to unilaterally set the initial terms and conditions of employment, in order to encourage business growth. The Court, however, did place a limit on this grant of freedom: “Although a successor employer is ordinarily free to set initial terms on which it will hire the employees of a predecessor, there will be instances in which it is perfectly clear that the new employer plans to retain all of the employees in the unit and in which it will be appropriate to have him initially consult with the employees' bargaining representative before he fixes terms.”
In a subsequent decision, Spruce Up Corp., (209 NLRB 194), the Board held that this “perfectly clear” successor exception was narrow and would only apply “in circumstances in which the new employer has either actively or, by tacit inference, misled employees into believing they would all be retained without change in their wages, hours, or conditions of employment.”
Then, in 1979, the Board decided Love’s Barbecue (245 NLRB No. 17). There, the Board held that when a successor employer would have hired all of predecessor’s unionized workforce but for engaging in illegal hiring to avoid successorship—and thus bargaining obligations—then any ambiguity or uncertainty would be resolved against the employer. This, in effect, would force the successor employer to retroactively restore the predecessor employer’s terms “since it cannot be permitted to benefit from its unlawful conduct.”
In 1996, the Board expanded on this exception again, this time in Galloway School Lines (321 NLRB 1422), where the Board held that Love’s Barbecue would apply in those situations where an employer discriminated against some, but not all or substantially all, of a bargaining unit. Essentially, Galloway held that if the successor employer discriminated against only some employees so as to avoid triggering its bargaining obligations under Burns, then the employer would be required to bargain with the union before setting the terms and conditions of employment.
Galloway brings us full circle with the Board’s decision in Ridgewood. The Board in Ridgewood reasoned that Galloway expanded Love’s Barbecue too far and needed to be overruled. “The majority there impermissibly tore the Love’s Barbecue remedy from its doctrinal roots and, in so doing, went far beyond the limits of the narrow ‘perfectly clear successor’ exception contemplated by the court in Burns,” wrote the majority. With this decision, the Board has thus returned to the standard in Love’s Barbecue and significantly narrowed the perfectly clear successor exception once again.
While a favorable decision for employers, the Board has provided another example of why employers—and in this case, unionized employers - must tread carefully in this era. Notably, the employer in this case did not raise the issue of Galloway, but the Board reached this particular issue anyway. While the Board kept in place the “perfectly clear successor” exception, it greatly narrowed the instances where it applies. All to say, when an employer is considering acquiring a business with a unionized workforce, it should always consult with labor counsel beforehand to fully understand its rights and obligations before proceeding.