By Monica Rodriguez

Seyfarth Synopsis: The Board narrowed the circumstances of when a successor employer will be a “perfectly clear” successor.  An employer will no longer be forced to bargain prior to setting the initial terms of employment if the employer engaged in discriminatory hiring practices as to some, but not all, of the predecessor’s former employees.

In Ridgewood Health Care Center, Inc., 367 NLRB 110 (2019), the Board narrowed the scope of when an employer acquiring a unionized company is a perfectly clear successor, such that the successor employer is required to bargain prior to setting the initial terms of employment.  In doing so, the Board overruled precedent established in 1996 in Galloway School Lines, 321 NLRB 1422 (1996).

“Perfectly Clear” Successor Doctrine

The employer acquiring the unionized company is a successor employer that is obligated to recognize and bargain with the union if the operations continue without substantial change and a majority of the new employer’s employees are the predecessor’s employees.

A successor has the right to set initial employment terms before bargaining with the union, unless it is a “perfectly clear” successor.  A “perfectly clear” successor is required to bargain with the union prior to setting initial terms of employment and honor the terms of the CBA negotiated by the predecessor.

A new employer is a “perfectly clear” successor only when the new employer indicates that it will hire all (or substantially all) of the predecessor’s employees.  However, an employer will also be required to bargain with the union prior to setting the initial terms if the employer actively or, by tacit inference, misled employees into believing that they would all be retained without changes to their wages, hours, or conditions of employment.

In Love’s Barbeque, 245 NLRB 62 (1979), the Board held that a new employer is not permitted to set the initial employment terms and conditions without first consulting the union if the new employer engaged in unlawful hiring practices against “all” or “substantially all” of the predecessor’s unit employees.

The Board in Galloway, expanded Love’s Barbeque’s holding so that an employer would be a perfectly clear successor if an employer discriminatorily failed to hire “some” (as opposed to “all” or “substantially all”) predecessor employees in order to avoid bargaining.

Overruling of Galloway

The Board found that Galloway and its progeny “went far beyond the limits of the narrow ‘perfectly clear successor’ exception contemplated by the Court.”  The Board rejected the notion that all employers who discriminate in any degree in the hiring process are “perfectly clear successors.”  The Board noted that this finding “goes too far” and undercuts the fundamental economic rationale for permitting successor employers to set initial employment terms.

The Board noted that many successors take over a distressed business that must undergo fundamental and immediate changes in employment to survive.  So, retroactive imposition of the predecessor’s employment terms on an employer who engages in discriminatory hiring practices runs counter to the principle that initial terms must generally be set by “economic power realities.”

Application To Ridgewood                             

In Ridgewood, the President and Owner of the successor employer announced to the predecessor’s employees that she expected to hire “99.9%” of them and to adhere to the predecessor’s CBA.  This message was contradicted by the successor employer’s counsel.  Even after announcing to the predecessor’s employees that they would be laid off, the President continued to assure the predecessor’s employees that 99.9% of them would be hired.  She later changed her position.

During the hiring process, the successor employer questioned the predecessor’s employee applicants whether they were Union members.  Only 49 former employees were hired out of a total of 101 employees hired.  The successor employer did not hire four of the former bargaining unit member employees who had applied for the position, which the Board found unlawful in light of the antiunion animus.  The predecessor’s employees would have constituted a small majority of the new employer’s workforce had the four former bargaining unit member employees been hired.

Because neither the complaint or the underlying charges alleged a violation based on the President’s comments as a theory, the Board did not analyze the comments and did not reach a finding that the new employer was a perfectly clear successor.  The Board focused solely on the number of former employees who applied to work for the successor, the four employees who the successor denied employment, and the absence of claims that others were discriminatorily denied the opportunity to apply for employment.  Based on this information, the Board found that there was no uncertainty whether the successor would have hired all or substantially all of the predecessor’s employees.  Thus, the successor maintained its rights to set the initial employment terms before bargaining with the union.

Employer Take Away

This case will make it easier for employers acquiring unionized workforces who are successors that they  have the right to set the initial employment terms without first having to bargain with the union.  While the Board did not analyze the employer’s statements to employees, successor employers should be careful in their communications to the predecessor’s employees.