Caveat Emptor: Labor Board Judge Gives Would-Be Buyers of Union Companies Reason to Beware

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October 5, 2015

Recently, one of the National Labor Relations Board’s administrative law judges (“ALJ”) issued a decision that reminds would-be purchasers of unionized companies to proceed with caution before taking the plunge.  The case is Riccelli Enterprises, Inc., available here: Riccelli_Decision.   In Riccelli Enterprises, Inc., the ALJ was called upon to determine whether: (1) the purchaser of a unionized business was required to continue the preexisting union-employer collective-bargaining relationship between the seller and an operating engineers local union; and (2) whether the purchaser of the business was free to unilaterally establish the terms and conditions of employment for the workers at the newly purchased company [wages, hours and working conditions].  Ultimately, the ALJ concluded that the buyer not only had to continue the preexisting collective-bargaining relationship with the union, but acted in a manner such that it was legally obligated to assume the identical terms and conditions of employment enjoyed by the workers prior to the purchase.   There are several important takeaways for companies considering purchasing a unionized operation, as follows:

  • “Key” factors taken into consideration in determining whether the buyer of a unionized business is a legal “successor” to the seller, and thus, must carry on the preexisting collective-bargaining relationship between the seller and union include whether: (1) buyer employs a majority of the seller’s employees at, or after, the time at which the union demands that the buyer bargain with it; and (2) the buyer’s business exists as a “substantial continuity” of the seller’s operations.
  • Whether a “substantial continuity” exists depends upon an evaluation of the following factors: (1) whether the buyer’s and seller’s businesses are alike; (2) whether bargaining unit employees perform similar jobs, under comparable working conditions with unchanged supervision; and (3) whether production processes, product lines and clientele are the same before and after the purchase.
  • A buyer that is found to be a legal “successor” to the seller is generally not bound to the substantive terms of the seller’s collective bargaining agreement, and is free to set its own initial terms and conditions of employment.  However, this right may be forfeited when a buyer inadvertently or intentionally fails to clearly announce to its newly-acquired workers [either directly, or indirectly through communications with a union business agent] that it will establish its own terms and conditions of employment prior to inviting the seller’s employees to accept employment.

In Riccelli Enterprises, Inc., the ALJ found that the buyer’s newly acquired mechanics and operators: (1) continued to perform the same job duties using the same tools and machinery; (2) generated the same products and completed the same steps in the production process; (3) worked analogous shifts; (4) received identical hourly wages; and (5) worked for the same customers.   The ALJ also concluded that the buyer had hired a majority of the seller’s union employees.  For these reasons, the buyer was a legal successor and is required to carry on the collective-bargaining relationship with the union.   Also, significantly, the buyer acted in a manner that nullified its legal right to unilaterally set the initial terms and conditions of employment for its newly-acquired workers—because buyer’s representatives told union agents, “when that agreements up and we renegotiate it, there’s going to be major changes…”  This simple and seemingly innocuous statement was enough to imply that the buyer had elected to continue the terms and conditions of employment the workers had enjoyed while employees of the seller.

This case is a cautionary tale for companies considering purchasing unionized businesses.  There are many traps for the unwary—but careful consideration of these factors, and others, are worth the investment of time and energy.

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