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Buyer Bound by Others' Business Continuity Statements, Seller's CBA's Terms: NLRB
Practical Law Legal Update w-002-8626 (Approx. 7 pages)
Buyer Bound by Others' Business Continuity Statements, Seller's CBA's Terms: NLRB
by Practical Law Labor & Employment
| Published on 26 Jul 2016 • USA (National/Federal) |
In Nexeo Solutions, LLC, the National Labor Relations Board (NLRB) held that a buyer employer was a "perfectly clear" successor on the basis of the terms of the purchase agreement and statements made to employees by the seller employer. Therefore, the buyer was required to bargain with the incumbent union before setting initial terms and conditions of employment.
On July 18, 2016, in Nexeo Solutions, LLC, the NLRB held that a buyer employer violated Sections 8(a)(5) and (1) of the NLRA by failing to bargain with the incumbent union to impasse or agreement before setting initial terms and conditions of employment. The panel (Board) heading the NLRB's judicial functions characterized the employer as a "perfectly clear" successor on the basis of the terms of the purchase agreement and statements made to employees by the seller employer. (364 N.L.R.B. No. 44 (July 18, 2016).)
Background
On November 5, 2010, Nexeo Solutions, LLC agreed to purchase a facility from Ashland Distribution. A union represented a unit of warehouse employees at the facility. The purchase agreement contained the following provisions:
"Section 7.5(b)(i): Continuation of Employment. Where applicable Law does not provide for the transfer of employment of any Employee ... Buyer shall ... make offers of at-will ... employment ... to be effective as of the Closing ... to all such Employees.
Section 7.5(d): Continuation of Compensation and Benefits. For a period of eighteen (18) months after the Closing Date … Buyer shall … provide to each Transferred Employee (i) a base salary or wages no less favorable than those provided immediately prior to the Closing Date and (ii) other employee benefits, variable pay, incentive or bonus opportunities under plans, programs, and arrangements that are substantially comparable in the aggregate to those provided by Ashland … as expected to be in effect as of on January 1, 2011 …
Section 11.7: Public Disclosure. No communication, release, or announcement to the public or to employees … shall be issued or made by any party without the prior consent of the other party … ; provided, however, that each of the parties may make internal announcements to their respective employees that are consistent with the parties’ prior public disclosures concerning the Contemplated Transactions …"
Ashland communicated with employees regarding the purchase on several occasions:
- On November 7, 2010, the president of Ashland sent an email to employees stating that "we anticipate … Ashland Distribution employees … will transfer to the new business." Ashland shared this email with Nexeo at or around the time it was created.
- The next day, Ashland posted an "Employee Q&A" to its intranet site stating that Nexeo intended to retain Ashland employees and provide employee benefits "substantially comparable in the aggregate" to then-current benefits. Ashland did not give Nexeo a copy of the "Employee Q&A" until December 2, 2010.
- Ashland also held a town hall meeting with employees, during which Ashland's president stated that jobs were not going to be cut.
Nexeo then sent offer letters to Ashland's employees. The letters indicated that employees would no longer be eligible to participate in the multi-employer pension plan or the multi-employer health and welfare plan. Instead, employees would be covered by Nexeo's 401(k) plan and group health plan. On April 1, 2011, Nexeo implemented those changes without first bargaining with the union to impasse or agreement.
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.
- Hire 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.
Even if an employer is a successor under those precedents, it is not bound to the terms of the predecessor's CBA. 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 Nexeo was not a "perfectly clear" successor, and therefore acted lawfully in setting the initial terms and conditions of employment without first bargaining with the union to impasse or agreement. The NLRB's General Counsel filed exceptions to the ALJ's decision.
Outcome
A majority of the Board (Chairman Pearce and Member Hirozawa) overruled the ALJ's decision, holding that Nexeo was a "perfectly clear" successor and, therefore, violated Sections 8(a)(5) and (1) of the NLRA by failing to bargain with the union to impasse or agreement before setting initial terms and conditions of employment. The Board majority reasoned that:
- The ALJ erred by:
- relying on the "totality of communications" to employees to determine whether Nexeo was a "perfectly clear" successor; and
- stating that a buyer employer must have misled employees into believing that employment terms would remain unchanged in order to be characterized as a "perfectly clear" successor.
- Nexeo became a "perfectly clear" successor because:
- Nexeo committed to offer employment to Ashland's employees under the terms of the purchase agreement;
- the email from Ashland's president stated that employees would be transferred to Nexeo without mentioning any changes in terms and conditions of employment; and
- the statement that employees would be offered "substantial comparable" benefits from Ashland's "Employee Q&A" was not specific enough to alert employees to the coming changes in their employment terms (Elf Atochem North America, 339 N.L.R.B. 796 (2003)).
- Ashland's communications with employees regarding the purchase were attributable to Nexeo because:
- the purchase agreement required Ashland to obtain Nexeo's consent before communicating with employees;
- evidence showed that Nexeo's consultants reviewed and edited some of Ashland's communications to employees;
- Nexeo authorized Ashland's president to speak on its behalf because Ashland's communications to employees made it clear that he would become part of Nexeo's management team; and
- Nexeo failed to repudiate Ashland's communications to employees.
In dissent, Member Miscimarra argued that:
- Nexeo was not a "perfectly clear" successor because:
- Ashland's email and "Employee Q&A" did not constitute offers of employment from Nexeo;
- Nexeo did not authorize or ratify Ashland's communications to employees because Ashland did not act or purport to act as Nexeo's agent when communicating with employees about the purchase;
- evidence showed that during the town hall meeting with employees, Nexeo's CEO spoke about how the compensation and benefits package was not yet finalized; and
- Nexeo did not share the terms of the purchase agreement with Ashland's employees until after it sent offer letters detailing the changes to employee benefits.
- The Board majority's decision would likely influence a buyer employer to attempt to limit the seller's ability to communicate with employees about continuity of employment after the transaction.
Practical Implications
The majority's decision in this case makes it easier for a buyer employer to be characterized as a "perfectly clear" successor and, therefore, be required to bargain with the union before setting initial terms and conditions of employment. This decision signals that the Board is willing to attribute the seller's communications to the buyer where the buyer's consultants have had the opportunity to review the communications.
The Board's decision also signals that it will not consider the "totality of communications" to determine if an employer is a "perfectly clear" successor. A buyer employer's attempts to preserve the right to unilaterally set initial terms and conditions of employment are less likely to be successful under the Board's more stringent analysis from this case. If a buyer employer wants to avoid being characterized as a "perfectly clear" successor, it should:
- Discuss setting initial employment terms when discussing continuity of employment.
- Avoid disclosing continuity of employment sections from the purchase agreement without simultaneously disclosing terms that preserve the buyer's right to set initial employment terms.
If the purchase agreement contains a clause that requires communications about an acquisition to be approved by the buyer, the buyer should either:
- Ensure that its consultants are aware of the seller's plans and the implications of statements about continuity of employment under the NLRA.
- Expressly limit the consultant's authority to act as the buyer's agent with regard to reviewing and approving communications for the buyer.