THE ACCIDENTAL SUCCESSOR: Asset Buyers Must Take Care to Avoid Unintentionally Becoming a “Perfectly Clear Successor”
October 31, 2019
Authored by: Anthony George
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