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THE ACCIDENTAL SUCCESSOR: Asset Buyers Must Take Care to Avoid Unintentionally Becoming a “Perfectly Clear Successor”

October 31, 2019

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Asset Buyers, beware.  If the Seller has union-represented employees, and you intend to hire some or all of those employees and operate the assets as a union-free employer, take care to avoid becoming an accidental successor.

As a recent decision of the D.C. Circuit Court of Appeals reminds us, the terms of the asset purchase agreement (APA) and all communications with Seller’s employees – by both Buyer and Seller – must be carefully managed.  Otherwise, Buyer can accidentally become a “perfectly clear successor” that is required to:

  • initially honor the terms of the existing collective bargaining agreement (CBA),
  • recognize the current labor union as the bargaining representative of the unionized Seller employees whom Buyer hires, and
  • bargain with the union over the terms of a new CBA for those employees going forward.

THE ASSET BUYER’S OPTIONS

Under the National Labor Relations Act, if an asset Seller has union-represented employees, and Buyer wishes to hire some or all of them and operate the assets, Buyer has three basic options:

  • Assume the CBA. Buyer will be bound by the terms of the CBA from the Closing Date and will be obligated to recognize the union as the bargaining representative of the employees covered by the CBA.  In most cases, the union will have no duty to bargain over changes to the CBA until the CBA is ready to expire – perhaps years after Closing.
  • Try to remain union-free. If it declines to assume the CBA, Buyer will normally be

Supreme Court Upholds Class Action Waivers

On May 21, the United States Supreme Court held that mandatory arbitration agreements containing class action waivers are to be enforced as written.  In Epic Systems Corp. v. Lewis, a trio of consolidated appeals, the Court rejected arguments by employees that section 7 of the National Labor Relations Act (“NLRA”) – which permits employees to engage in “concerted activity” for the purposes of “collective bargaining or other mutual aid or protection” – grants employees a statutory right to assert legal claims (such as claims under federal and state wage and hour laws) on a class or collective basis.

This decision is significant for employers nationwide. Since 2012, the National Labor Relations Board (“NLRB”) has asserted that such waivers violate the NLRA, forcing employers to choose whether to (a) risk violation of the NLRA, (b) implement an opt-out procedure that some courts had concluded might comply with the NLRA, or (c) abandon their class-action waivers and face the threat of class and collective wage and hour suits.

In response to the NLRB’s position, some courts (including the Ninth Circuit Court of Appeals) had refused to enforce mandatory arbitration agreements with class action waivers on the grounds that they were unlawful under the NLRA and, therefore, fell within the savings clause under the Federal Arbitration Act (“FAA”).  That clause permits courts to refuse to enforce arbitration agreements “upon such grounds as exist at law or in equity for the revocation of any contract.”  In reversing the Ninth Circuit and rejecting the NLRB’s

NLRB Update: Trump Board Wastes No Time Overturning Obama-Era Precedent

December 26, 2017

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With two appointments by President Trump, the National Labor Relations Board (NLRB) had a Republican majority for several months in 2017, for the first time in ten years.  The “Trump Board” wasted no time overturning Obama-era precedents – and has signaled that there is much more to come.

Harder for Employers to be Declared “Joint Employers”

In Hy-Brand Industrial Contractors, Ltd., 365 NLRB No. 156 (Dec. 15, 2017), the Board overruled the joint-employer test announced in Browning-Ferris Industries of California, Inc., 362 NLRB No. 186 (2015).  In Browning-Ferris, the Obama Board had departed from decades of precedent to declare that two unrelated employers would be deemed “joint employers” for purposes of the National Labor Relations Act (NLRA) if one had reserved the right to exercise direct or indirect control over the employees of the other, even if that control was never actually exercised, and even if the control was only “limited and routine.”  Under the traditional standard, now restored by the Board in Hy-Brand, joint employer status will be found only where the requisite control is actually exercised, is direct and immediate, and is more than merely limited and routine.

Harder for Unions to Justify “Micro-Units”

In PCC Structurals, Inc., 365 NLRB No. 160 (Dec. 15, 2017), the Board overruled the Obama-era decision in Specialty Healthcare & Rehabilitation Center of Mobile, 357 NLRB 934 (2011), which had permitted labor unions to petition for elections in “micro units” of cherry-picked employees unless the employer could prove that employees excluded from

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