Regulatory Updates

Successorship Under the National Labor Relations Act: The Basics Every Employer Should Know

Kevin J. Allis
Kevin J. Allis

Kevin J. Allis, Attorney at Law
PilieroMazza PLLC

As tribal business development corporations grow, so should the concern regarding unionization. Today's most successful Indian tribes and Alaskan Native Corporations, as part of their business development strategy, purchase or merge with business entities in all types of industries. As such, tribes and their business enterprises are likely to come into contact with labor unions, as tribally owned enterprises acquire or merge with unionized companies.

Often when a successor purchases a company with a certified union representing some or all of the employees, there exists an understandable confusion as to the successor's obligation to recognize the union. In some instances, the successor will refuse to recognize the union on the grounds that it has no relationship with the union, and as such does not have to entertain collective bargaining regarding the terms and conditions of the newly acquired workforce. Unfortunately, in many cases this posture is incorrect, and if maintained will usually result in the filing of an unfair labor practice, that often results in an outcome unfavorable to the successor employer.

It is well established that a mere change of employers alone is not sufficient to nullify the certification of the employees' representative. Where the nature of the business continues without substantial change after the transfer of ownership, the successor employer is required under federal law to recognize the union. The National Labor Relations Board (NLRB) has consistently held that there is no reason to believe that the employees have changed their attitude towards representation simply because the identity of their employer has changed. Where the successor performs the same services, utilizing the predecessor's former supervisors, on the same premises, with the same employees, exercising the same skills and using the same tools and equipment, for the same market of customers, form the perspective of the employees; nothing has changed warranting a belief that union representation is no longer desired.

In determining whether the new company is a successor company, thereby obligating the new company to recognize the union, the NLRB will apply its “substantial continuity” rule. Simply, this rule addresses whether the new company has acquired substantially all of the predecessor's assets, and has continued, without interruption, the predecessor's business operations. It will usually be determined that the new company is a successor when the following circumstances exist: (1) the new company acquires most of the predecessor's real property, machinery, equipment, inventory, and materials, (2) produces the same product line, (3) essential nature of employees' jobs remains the same, (4) job classifications remain the same, and (5) employees' work on the same machines and under the direction of may of the same supervisors as when working for the predecessor.

On the other hand, factors that are evidence of “discontinuity” between the employers, thereby providing the new employer with the ability to reject the union's representation are (1) the hiring through by newspaper advertisements rather than the predecessor's employment records, (2) a long hiatus between the predecessor's demise and the startup of the new employer, (3) changes in sales and marketing, (4) the new company does not assume the predecessor's liabilities or tradename, and (5) there is a reduction in the size of the workforce as compared to the predecessor's company.

The theory behind successorship is based upon the overriding premise of the National Labor Relations Act (NLRA) which is to promote peaceful and healthy labor relations. Because transitions from one employer to another can be particularly threatening to industrial peace, the rebuttable presumption that the certified union enjoys majority status continues despite the change of employers.

However, if a majority of the new employer's workforce is new and was never associated with the predecessor, or if the product line, job responsibilities of the employees, and the identity of supervisors should change, serious doubt is cast upon continued majority status. Again, when deciding whether a successor is obligated to recognize the union, the view is that from the employees' perspective. If the working environment is substantially different from that of the predecessor's, there is no reason to believe that the employees still wish to be represented by the union. Both the NLRB and the courts have held that such changes warrant the refusal to recognize the predecessor's union.

Finally, successor employers are not bound by the substantive provisions of the collective bargaining agreement between the union and the predecessor employer. The new employer is free to set the initial terms and conditions of employment for the employees. However, once these terms and conditions are set, the new employer has an obligation to bargain in good faith with the existing labor union.

A successor employer's obligations under the NLRA can be complicated and wrought with dangers for the unsuspecting employer. As such, competent legal counsel with extensive knowledge in traditional labor law is essential to avoiding the unnecessary and costly expense of defending against an unfair labor practice.

Kevin J. Allis, an attorney with the Washington D.C. firm of PilieroMazza PLLC, is a tribal member of the Forest County Potawatomi Community. His areas of practice include management-side labor and employment law and Native American Indian law. He can be reached by calling (202)-857-1000
or email kallis@pilieromazza.com.