The US Court of Appeals for the First Circuit ruled that a Providence, Rhode Island ordinance requiring hospitality employers to retain predecessor employees for 90 days was not preempted by the National Labor Relations Act (NLRA).
In Rhode Island Hospitality Ass'n v. City of Providence, the US Court of Appeals for the First Circuit ruled that the NLRA did not preempt a municipal ordinance requiring hotels and other hospitality employers to retain their predecessor's employees for at least 90 days after a change in the employer's identity. The First Circuit joins the D.C. Circuit in holding that the NLRA does not preempt state and local laws requiring new owners of select types of businesses to retain the incumbent workforce absent an NLRB decision that an employer becomes a "successor" under the NLRA by merely complying with state or local law. As these types of law proliferate to stabilize employment of local workforces, it is increasingly important to understand how the NLRB's successorship doctrine might be implicated.Close speedread
On December 2, 2011, the US Court of Appeals for the First Circuit issued a decision in Rhode Island Hospitality Ass'n v. City of Providence. The key issue was whether a city ordinance requiring hospitality employers to retain their predecessor's employees for 90 days following a change in the employer's identity was preempted by the NLRA.
Under the US Supreme Court's decisions in NLRB v. Burns International Security Services and Fall River Dyeing & Finishing Corp. v. NLRB, a company that acquires a unionized business can become a successor to the acquired business's collective bargaining obligations if:
There is substantial continuity in business operations.
A majority of the acquiring company's employees in an appropriate unit for collective bargaining comprises holdover unionized employees.
Even if an employer is a successor under those cases, it is not bound to the terms of the collective bargaining agreement. Therefore, an employer can set its own initial terms unilaterally as long as it is not "perfectly clear" that the successor plans to retain all of the predecessor's employees (see Burns; Spruce Up Corp.).
The City of Providence enacted an ordinance in 2009 requiring hospitality businesses in Providence with at least 25 rooms, including hotels, motels, resorts, boarding houses, and bed and breakfasts, to retain all employees for 90 days after any event that causes the employer's identity to change within a one-year period (for example, a sale or termination of a lease). The ordinance applies only to employees who were employed for at least two months before the change in identity and covers both unionized and non-unionized workplaces. However, the employer:
Must retain the number of employees it needs for its new operations.
fire any employee for good cause; or
set the terms and conditions of employment during the three-month period.
The Rhode Island Hospitality Association, a trade group representing food service, lodging, restaurant and tourism industries in Rhode Island, and the companies behind two Rhode Island hotels filed suit seeking an injunction to prevent enforcement of the ordinance and a declaratory judgment that the ordinance was unlawful because it:
Was preempted by the NLRA.
Violated the Equal Protection Clause.
Violated the Contract Clause.
The district court ruled for the defendants and the plaintiffs appealed.
The First Circuit affirmed the lower court's decision, dismissing the Equal Protection Clause and Contract Clause arguments as non-serious and focusing on the plaintiffs' preemption claims.
The plaintiffs had argued:
The ordinance was preempted by negative implication from the NLRA (Machinists preemption, under Lodge 76, Int'l Ass'n of Machinists v. Wis. Emp. Relations Comm'n) because it:
created a risk that businesses undergoing changes in identity would trigger the NLRB's successorship doctrine, under which businesses that are deemed successors must recognize and bargain with the union that represented the predecessor's employees (for more on the successorship doctrine, see Legal Update, NLRB Overturns MV Transportation and Reestablishes the Successor Bar Doctrine (www.practicallaw.com/7-508-0446));
improperly enhanced union bargaining power; and
impermissibly interfered with employers' rights to make their own hiring and firing decisions.
The ordinance was preempted by the Garmon doctrine, under which states cannot regulate any activity arguably protected or prohibited by the NLRA (San Diego Bldg. Trades Council v. Garmon).
The plaintiffs argued that since the ordinance requires hospitality employers to retain employees for three months, the NLRB would likely conclude that an employer was a successor under Burns and Fall River and require it to bargain with any incumbent union.
The court dismissed this claim, finding:
The NLRB had not yet considered whether an employer can become a successor under the NLRA because it retained employees of its predecessor to comply with law. Accordingly, it was premature to anticipate how the NLRB would rule. The issue could be taken up in the future before the NLRB rather than in a pre-enforcement suit like this one.
There was no preemption because:
the NLRA successorship doctrine focuses on the employer's conscious decision to maintain the same business, not whether the employer must retain employees by law; and
there was no indication from the NLRB that it would rule as the plaintiffs claimed.
On the two remaining Machinists preemption claims, the court found:
The mere fact that the ordinance related to an issue over which employees could bargain was insufficient to support preemption, consistent with the US Supreme Court's decision in Fort Halifax Packing Co. v. Coyne.
The ordinance's limitation on an employer's ability to hire and fire was limited in duration and scope.
The court also dismissed the plaintiffs' Garmon doctrine claims, finding the plaintiffs had not shown that the ordinance regulated any activities arguably:
Protected by the NLRA.
Prohibited by the NLRA.
The First Circuit's rationale is consistent with that of the D.C. Circuit and US District Court for the Eastern District of New York which found that the NLRA did not preempt similar statutes (see Washington Service Contractors Coalition v. District of Columbia and Alcantara v. Allied Properties, LLC).
The First Circuit's decision highlights that the NLRB has not set any precedent interpreting how local employment retention laws may impact the NLRA's successorship doctrine in the 16 years since the D.C. Circuit decided Washington Service Contractors Coalition. Since these types of laws are becoming more common, and in light of this decision, companies that are considering acquiring on-going businesses should:
As part of their due diligence, review:
whether local or state law would require it as a purchaser to retain incumbent workers and apply specific employment terms and conditions.
any collective bargaining agreements and relationships of the target business.
the NLRB may find that a purchaser obligates itself to bargain collectively with an incumbent union if it continues the predecessor's business and retains the incumbent employees for a statutorily mandated period;
the NLRB will likely find that a purchaser obligates itself to bargain collectively with an incumbent union if it continues the predecessor's business and retains the incumbent employees beyond any statutorily mandated period; and
representations that a purchaser will retain all of the employees may obligate it to honor the terms of the predecessor's collective bargaining agreement.
Account for any potential bargaining obligations in any offer price.
Comply with local mandatory retention law with minimal expectation that any federal court will find that the NLRA preempts it.
If local law requires retention of employees who were members of the union, consider making self-serving statements to dissuade the NLRB from considering them "perfectly clear" successors or finding that it should measure continuity of operations and staff during the mandated retention period including:
expressly disclaiming any intention of permanently hiring incumbent employees; and
notifying employees of an intent to evaluate whether or not it will continue the prior business and retain incumbent employees when retention is no longer statutorily required.