Client Question: We are evaluating a business strategy of buying a competitor. They have a union contract, and we want no part of having a union. What do we have to do to not inherit their union?
Answer by Dick Wessels: This is a complex area of labor law. Because it is so fact sensitive, about all I can do is set out some general principles. Perhaps more than any other area of labor law, slight changes in the fact pattern could dramatically change the legal consequences (and thus the strategy to be used).
Here are the fundamental principles.
1. Obligations of the predecessor employer. The issues here would involve whether or not "decision bargaining" is required and also the issues of "effects bargaining." The particular facts of the situation are exceedingly important. For example, is the change occurring during the collective bargaining agreement or after contract expiration? Specific contract language could have substantial impact. "Decision bargaining" is often necessary, especially if labor costs are a factor. "Effects bargaining" involves such issues as severance pay, etc. and is almost always required. Keep in mind that only "bargaining" is required, not agreement.
2. Effect of "successors and assigns" clauses. Despite the frequently clear wording of successorship clauses, the case law is that such clauses do not bind a successor employer. The simple reason is that there is no privity of contract. However, a successorship clause could have impact on the duties of the predecessor employer. For example, there have been cases based on specific contract language wherein a union has successfully enjoined sales or transfers of a business.
3. Is the new employer a "successor at law?" In your situation, this is the key question. There are several variations on this theme. Of course, if the transaction is a stock deal, the new employer merely steps into the shoes of the predecessor employer and would inherit the contract. If it is another form of transaction like an asset purchase, however, the general principle is that a successor inherits not the contract but only the obligation to "bargain in good faith." The NLRB and the reviewing courts have focused on the following inquiries in determining whether there is a successorship:
- Continuity of the workforce.
- Continuity of identity of the business enterprise.
- Continuity of the appropriate bargaining unit.
By far the most important factor is continuity of the workforce. Must reading for anyone developing a strategy of this type is the U.S. Supreme Court's decision in Fall River Dyeing & Finishing Corp. v. NLRB, 482 US 27 (1987). The likelihood is that if you do not take the employees, you have no obligation to the union. If you take some, it becomes more problematic.
4. A successor can set initial terms and conditions. The general rule is that if there is a successorship (usually majority status is the key issue here), the new employer can set initial terms and conditions. There are exceptions to this such as the "perfectly clear" principle, but in the vast majority of situations, it is appropriate for the successor to set initial terms and conditions. In other words, it would not be bound by the precise terms of the underlying collective bargaining agreement. If there is a successorship, the company's obligation after setting initial terms and conditions would be to "bargain in good faith" with the union (in an effort to reach a collective bargaining agreement).
5. Practical considerations. In a high percentage of the situations, where the new employer is continuing the enterprise with essentially the same workforce, that new employer will find it in its best interest to continue the relationship in an uninterrupted manner. Sometimes this will involve no more than assuming the existing agreement. Often an employer will engage in discussions with the union to negotiate changes. Many times this occurs prior to the completion of the transaction and, on occasion, this has been a condition upon which the entire transaction is based. It has been our experience that a new employer, who is willing to continue uninterrupted the relationship with the union, will find it relatively easy to achieve a new agreement with the union (which might well contain substantial changes from the prior agreement).
Again, keep in mind that this covers general principles only. Slight changes in the fact pattern could substantially change the recommended strategy.
Questions? Call Attorney Dick Wessels of Wessels Sherman's St. Charles, Illinois office: 630-377-1554 or email him at firstname.lastname@example.org.
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"Ask Your Labor Lawyer" is our very popular monthly column written by Dick Wessels who is Founder and Senior Shareholder of Wessels Sherman Joerg Liszka Laverty Seneczko P.C. He is a nationally recognized labor attorney and has been honored as an Illinois Super Lawyer.Dick handles a wide variety of labor and employment law cases. His primary focus is dealing with labor unions, either on behalf of union-free companies or where unions already have representation rights. Dick has handled cases involving nearly all international unions for companies throughout the United States.