Labor & Employment News Alert
Third Circuit Reminds Employers That Unions Can Review Portions of Asset Purchase Agreements
May 1, 2023
On April 20, 2023, the United States Court of Appeals for the Third Circuit issued an opinion, in Crozer Chester Medical Center v. NLRB, finding that two employers violated the National Labor Relations Act (“NLRA”) by refusing to produce portions of an Asset Purchase Agreement (“APA”) requested by a union.
By way of background, Crozer-Chester Medical Center (“Crozer”)—a nonprofit healthcare network—sold its assets to Prospect Medical Holdings, Inc. (“Prospect”). Prior to finalizing the sale, Crozer notified its union employees of the asset sale and also informed them that Prospect would offer them employment pursuant to initial terms set by Prospect. One of the unions representing a portion of Crozer’s employees requested a copy of the complete APA entered into between Crozer and Prospect. Crozer denied the request and the union filed an unfair labor practice charge against Crozer with the National Labor Relations Board claiming that Crozer violated the NLRA. Prior to a resolution by the Board, the union obtained a publicly filed copy of the APA, but still sought copies of the schedules and exhibits attached to the APA.
In a prior appeal, the Third Circuit determined that the Board abused its discretion by requiring Crozer to produce the entire APA, along with its attachments, but also agreed with the Board that Crozer violated the NLRA because certain attachments were relevant. Thus, the Court remanded the case to the Board to determine which attachments should be produced to the union. On remand, the Board ordered Crozer to produce 21 attachments to the APA.
In the second appeal, the Third Circuit affirmed the Board’s order. The Court noted that information pertaining to the terms and conditions of bargaining unit employees is presumptively relevant to the union’s role as a bargaining representative. In this regard, the relevancy standard is “undemanding” and a liberally broad “discovery-type standard” is used to make these determinations. The Court found that all of the APA’s attachments, except one, were presumptively relevant because there was a probability that they contained information related to wages, benefits, potential layoffs, and permanent department closures. The Court, like the Board, found that the titles and descriptions in the APA and attachments supported such a finding, and that Crozer failed to rebut the presumption of relevancy. Moreover, the Court found that the union did not need to conclusively prove the contents of the attachments to demonstrate presumptive relevancy, and instead only needed to show a “probability” that the attachments were relevant to the union employees and the union’s role as the bargaining representative.
When a document is not presumptively relevant, a union bears the burden of demonstrating relevance. This is not an onerous requirement. Accordingly, for the APA’s other attachments which were not presumptively relevant, the Court held that substantial evidence supported the Board’s conclusion that the union demonstrated the relevance of those attachments.
In conclusion, when a seller’s employees are represented by a union, the parties to an asset sale should understand that portions of their APA, along with its attachments, may be disclosed to that union pursuant to the NLRA. Therefore, in preparing APAs, parties may want to consider several matters, such as:
- When to notify a union of an asset sale in order to preserve the integrity of the transaction while satisfying any decisional or effects bargaining obligations an employer may have.
- If a union requests a copy of an APA, or portions thereof, does the request seek information which is presumptively relevant, and if not, has the union demonstrated the relevance of the requested information.
- Whether relevant information or documents should be produced under a confidentiality agreement to be negotiated with a union.
- How the parties to the agreement decide to reference or label schedules and exhibits to the APA.
This opinion should serve as an important reminder of a union’s representational role when the assets of a business are sold.