Compliance with Local Staff Retention Law Rendered Building Purchaser a Collective Bargaining Successor: NLRB | Practical Law

Compliance with Local Staff Retention Law Rendered Building Purchaser a Collective Bargaining Successor: NLRB | Practical Law

In GVS Properties, LLC, in a matter of first impression, the National Labor Relations Board (NLRB) held that an employer compelled to hire its predecessor’s unionized employees under a local mandatory worker retention statute is a Burns successor.

Compliance with Local Staff Retention Law Rendered Building Purchaser a Collective Bargaining Successor: NLRB

by Practical Law Labor & Employment
Published on 17 Apr 2017 • USA (National/Federal)
In GVS Properties, LLC, in a matter of first impression, the National Labor Relations Board (NLRB) held that an employer compelled to hire its predecessor’s unionized employees under a local mandatory worker retention statute is a Burns successor.
On August 27, 2015, in GVS Properties, LLC, in a matter of first impression, a majority of the panel (Board) heading the NLRB's judicial functions held that a purchaser of several buildings in New York City was a successor to the seller's building services contractor's collective bargaining obligations under NLRB v. Burns International Security Services, Inc., once it took control of the buildings, in-sourced property management functions and, to comply with a local staff retention ordinance, hired temporarily the unionized employees of that contractor (see 406 U.S. 272 (1972)). The Board's decision effectively equates purchasers' decisions to comply with local staff retention laws with conscious and voluntary decisions to hire a majority of its workforce from a predecessor's unionized workforce, a requirement for an employer to inherit collective bargaining obligations under Supreme Court and Board precedent. (362 N.L.R.B. No. 194 (Aug. 27, 2015).)

Background

In February 2012, GVS purchased real estate properties in New York City. The seller subcontracted maintenance and repair services to Vantage, a company with workers represented by the International Association of Machinists (Machinists). GVS immediately notified the workers that:
  • GVS would manage the properties going forward and the workers would no longer have jobs in the buildings through Vantage.
  • Their employment terms and conditions with Vantage were revoked.
  • If the workers stayed on with GVS, GVS would set new employment terms and conditions.
GVS stipulated that it hired seven of the bargaining unit's eight workers based on a New York City mandatory retention statute, the Displaced Building Service Workers' Protection Act (DBSWPA), which is similar to other local laws in the US (for example, see Legal Update, Rhode Island Staff Retention Rule Not Preempted by NLRA: First Circuit). It requires that a purchaser of a property where building service employees were employed (called "successor employers"):
  • Retain a predecessor's building service employees for a 90-day transition period.
  • Not discharge a retained employee without cause.
  • Offer the employee continued employment if, at the end of the 90-day transition period, the employee's performance is satisfactory as determined by the successor employer's required written performance evaluation.
(N.Y.C. Admin Code § 22-505(b).)
In March 2012 the workers' union, a local of the International Association of Machinists (Machinists) requested that GVS recognize and bargain with it. GVS refused, stating that the request was premature because GVS would not employ a substantial and representative complement of employees until the DBSWPA's 90-day transition period expired. The union promptly filed an unfair labor practice charge alleging that GVS unlawfully refused to recognize and bargain with the union and an NLRB regional director issued a complaint.
In May 2012, when the transition period expired, GVS discharged three of the incumbent building service employees and hired four new employees. The new workforce consisted of four employees who had worked for Vantage and four employees who had not.
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 collective bargaining successor to the acquired business's collective bargaining obligations, under a presumption of continued support for the union, if the acquiring company makes a conscious decision to:
  • Maintain generally the same business as the preceding employer.
  • Hires a majority of its employees, in an appropriate unit for collective bargaining, from the preceding employer's unionized workforce, where that head count is measured at a time when the new employer has selected a substantial complement of its workforce.
(Burns Int'l Security Servs., 406 U.S. at 278-79; Fall River Dyeing & Finishing Corp. v. NLRB, 482 U.S. 27, 43 (1987).)
Even if an employer is a successor under those precedent, it is not bound to the terms of the predecessor's 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, 406 U.S. at 285-89; Spruce Up Corp., 209 N.L.R.B. 194 (1974).)
An Administrative Law Judge (ALJ) decided that GVS:
  • Became a Burns successor when it assumed control of the predecessor's business and hired the predecessor's employees.
  • Unlawfully refused to recognize and bargain with the union.
GVS filed exceptions to the ALJ's decision.

Outcome

A majority of the Board (Chairman Pearce and Member Hirozawa) affirmed the ALJ's decision, holding that:
  • GVS became a Burns successor obligated to bargain with the union when it took control of the properties and hired the predecessor's employees under the DBSWPA.
  • GVS unlawfully refused to recognize and bargain with its predecessor's union.
  • The NLRB will determine whether a purchaser-new employer is a successor under the NLRA once it controls the property and hires employees, even if that hiring is mandated by local law. It will not defer analyzing the employer's workforce until after a local statute's mandatory retention period expires because that would preclude the employees from being represented in collective bargaining as soon as possible.
The Board majority noted that:
The Board majority found that:
  • GVS must have had actual or constructive knowledge of the DBSWPA when it purchased the buildings and in-sourced Vantage's building service business.
  • GVS made a "conscious" decision to purchase the buildings and maintain the buildings its purchased even though it knew that, under the DBSWPA, as a consequence for those actions, it would be required to hire Vantage's employees for 90 days and consider retaining them thereafter.
  • GVS's decision to purchase the properties and its decision to retain the predecessor's workers were "in effect one in the same" and were made voluntarily because it was "reasonably foreseeable" that purchasing the properties would necessitate retaining the employees for a certain period of time.
  • The US Supreme Court's decisions in Burns and Fall River did not intend to have a local worker retention statute thwart employees' expectation of continued representation amid an employer transition.
  • Employees' heightened interest in continued representation would be undermined by delaying the successorship determination until the statute's mandatory retention period expires. The possibility that the employer's workforce would lack a majority complement of the predecessor's employees when the mandatory retention period expires is not a sufficient basis to leave the successor's employees without their chosen bargaining representative during the mandatory retention period. Even though GVS ultimately did not retain a majority of its predecessor's employees, other employers in the same situation are equally likely to retain a majority to gain the benefit of their experience and expertise.
  • Any doubt about the eventual makeup of the workforce created by its temporary or probationary nature during the mandatory retention period is insufficient to outweigh employees' interests in having continued union representation as soon as possible during an employer transition.
Contrary to the dissent, the majority asserted that it was not:
  • Suggesting that all employers subject to local worker retention statutes are "perfectly clear" successor employers unable to unilaterally set initial employment terms and conditions.
  • Destroying successor employers' right under Burns to set initial employment terms and conditions.
  • Setting the stage for an end to local worker retention statutes, although the Board acknowledged that its holding in this case that successorship obligations arise before the mandatory retention period ends could lead courts to find that the NLRA preempts claims under local retention statutes.
Member Johnson dissented, noting that:
  • The majority was essentially engaging in "reverse preemption" by permitting local/municipal law to step in for the Board in determining federal successorship law under the NLRA.
  • The NLRA successorship doctrine focuses on an employer's conscious decision to voluntarily maintain the same business and workforce. GVS and other employers subject to a mandatory worker retention statute like the DBSWPA do not make a "conscious" or "voluntary" decision to assume their predecessors' workforce. Instead, they are compelled to do so by the coercive nature of the statute (Rhode Island Hospitality Assn. v. City of Providence, 667 F.3d 17, 19 (1st Cir. 2011).)
  • The majority's reliance on probationary period cases and cases in which a purchaser agreed to hire the predecessor's employees before completing the purchase is misplaced. In each of those cases, there was a contractual obligation rather than statutory or regulatory obligation to which the employer consciously and voluntarily agreed to be bound.
  • The majority was allowing mandatory retention statutes like the DBSWPA to:
    • trigger a successor's obligation to recognize and bargain with an incumbent union, upsetting the balance in successorship cases struck by the US Supreme Court in Burns; and
    • control an aspect of federal labor law, which would in turn lead courts to reject local worker retention statutes on preemption grounds.
  • The majority's disclaimer that this case's analysis of what is a conscious and voluntary decision would not make every purchaser of a business subject to a local staff retention law a "perfectly clear successor" is meaningless. The path to that conclusion is laid; the parties just had not asked the Board to head there yet.
  • Delaying successorship determinations until mandatory retention periods expire would not "unduly burden unions" but would merely postpone application of successorship doctrine until the employer makes a voluntary and conscious decision about its workforce. The Supreme Court approved of deferring successorship determinations until the purported successor hired a substantial complement of its employees.

Practical Implications

The Board's decision in GVS Properties creates a special successorship test where an entity purchases real property (or a business) that is subject to a local mandatory staff retention law with a nearly guaranteed result: successorship. The decision to purchase a property or business that may be subject to a local mandatory staff retention law "is one in the same" as consciously and voluntarily deciding to hire a majority of employees from the preceding employer's unionized workforce. The NLRB will not defer successorship determinations to a time when the employer has consciously and voluntarily hired a substantial complement of its workforce as the Supreme Court interpreted in Fall River. When the purchaser complies with a staff retention law with which it had at least constructive knowledge, the NLRB immediately compares the purchaser's and preceding employer's head counts.
This decision increases the need for due diligence in real estate and business acquisitions. The Board majority:
  • Presumed that GVS, before it purchased the properties, had constructive knowledge:
    • that the buildings it was purchasing were places where building service workers were employed, albeit by a contractor of the seller;
    • of a building service worker staff retention law that would apply to it as an entity that bought property or acquired control of property in which building service employees were employed;
    • that it would be obligated under that law to hire building service employees of the seller's contractor, Vantage, for 90 days; and
    • that Vantage's employees were represented by a union.
  • Found that it was reasonably foreseeable that the NLRB might deem it a successor to Vantage's collective bargaining obligations even it hired Vantage's employees only for the statutorily-required 90 days.
This decision might have a deleterious effect on local staff retention laws. As the dissent asserted, several federal courts have held that the NLRA did not preempt local staff retention laws like the DBSWPA only because the Board has not held that an employer becomes a successor to collective bargaining obligations by hiring workers to comply with those local laws (for example, see Rhode Island Hospitality Assn. v. City of Providence, 667 F.3d 17, 19 (1st Cir. 2011)).
Putting these issues together, prospective acquirers of real property or businesses may:
  • Be discouraged from purchasing a moribund business where the combination of local law and the NLRA, as now interpreted, will hamper the acquirer's efforts to replacing failed operations strategies and labor relations policies of prior owners with their own.
  • Need to account in any offer price for prospective:
    • reductions in operational flexibility that local staff retention laws and the NLRA may impose;
    • costs of complying with staff retention laws and the NLRA, including potential collective bargaining costs; or
    • costs of not complying with the local staff retention laws and litigating whether claims and penalties under those laws are preempted by the NLRA.

UPDATE:

On April 20, 2017, the Board vacated its order in GVS Properties, LLC in an unpublished order pursuant to a per curiam order by the US Court of Appeals for the District of Columbia Circuit dated February 15, 2017 in Appeal No. 15-1305 ( (Apr. 20, 2017)).