On April 2, 2019, in a 3-1 decision split along party lines, the Trump administration’s National Labor Relations Board (Board) appointees significantly narrowed the circumstances under which a successor employer will be construed as a perfectly clear successor and forced to forfeit its right to set initial employment terms. The decision, Ridgewood Health Care Center Inc., and Ridgewood Health Services, Inc., overrules precedent which had established that a successor employer which uses discriminatory hiring practices to target less than all of the bargaining unit’s employees and deprives the union of majority status is a perfectly clear employer. The decision allows a successor employer to retain its right to unilaterally set the initial terms of employment despite its discriminatory actions that directly affect less than all of the predecessor employees.
The perfectly clear successor doctrine
A new employer which takes over a business with a unionized workforce, operates the business in a substantially unchanged form and retains a majority of the bargaining unit’s workforce is a successor employer. In the case of NLRB v Burns Security Services, Inc, the Supreme Court held that generally, the successor employer is free to set the initial terms and conditions of employment of the bargaining unit’s workforce prior to negotiating with the union under the collective bargaining agreement (CBA).
An exception to the general rule applies if it is perfectly clear that the new employer will retain all or substantially all of the employees in a bargaining unit. Under the “perfectly clear exception” a successor employer forfeits its Burns right to set the initial terms of employment. Instead, the successor must negotiate the initial terms of employment with the union while honoring the terms of the CBA negotiated by the predecessor employer.
The perfectly clear exception will be imposed on a successor employer in two instances: if the successor either actively or tacitly misleads employees into believing that all the bargaining unit’s employees will be retained without a change in the terms and conditions of employment, or the successor fails to clearly announce its intention to establish a new set of employment terms prior to inviting the former employees to accept employment.
Ridgewood successor employer misleads employees and engages in discriminatory hiring practices
Ridgewood Health Care Center (Ridgewood) is a skilled nursing home that had been operated by Preferred Health Holdings II, LLC (Preferred) with a unit of the workforce covered by a CBA. Ridgewood Health Care Center, Inc. (RHCC), which had leased the Ridgewood facility to Preferred, terminated the lease and assumed operations of the Ridgewood nursing home along with a management company, Ridgewood Health Services (RHS).
RHS originally informed Preferred’s employees that it would hire 99.9% of the current employees, that wages and benefits would stay essentially the same, and that it would honor the CBA. RHS subsequently refused to recognize the union, made statements evidencing a discriminatory animus toward the union, and engaged in a discriminatory hiring scheme to prevent the union from maintaining majority status. The scheme resulted in the employment of 49 Preferred employees and 52 new employees.
The NLRB ALJ concluded that that RHCC and RHS were a single employer, successor employer and a perfectly clear employer. In his decision, the ALJ recounted in exhaustive detail the discriminatory hiring practices and facts that evidenced an anti-union animus and a scheme to deprive the union of majority status in order to circumvent negotiations with the union. The evidence presented established that the successor employer not only misclassified new employees to deflate the union’s majority but discriminatorily denied employment to four predecessor employees. Denial of employment to the four employees was just enough to deprive the union of majority status. Consequently, the ALJ held that RHS was a perfectly clear successor employer with an obligation to recognize and bargain with the union prior to setting different initial terms of employment for the bargaining unit employees.
NLRB’s decision rejects ALJ’s conclusion to apply the perfectly clear successor doctrine and overrules precedent
The Board agreed with the ALJ’s conclusion that RHS was a successor employer and was required to recognize and bargain with the union. The Board also agreed that the RHS engaged in a discriminatory scheme designed to deprive the union of majority status and was successful in depriving the union of majority status. But, the majority of the Board stopped short of imposing the perfectly clear successor exception. Instead, it characterized the exception as a “narrow” exception to the Burns general rule, limited to situations in which the successor employer discriminates against all or substantially all of the predecessor employees.
In the Ridgewood case, the majority of the Board agreed that four predecessor employees were discriminatorily denied employment to deprive the union of majority status. Instead of imposing perfectly clear successor status on RHS and compelling it to negotiate new terms of employment with the union, it simply awarded the four employees reinstatement, backpay, interest, and reimbursement of associated costs. The majority identified two bases for its decision: the “unwarranted expansion” of the perfectly clear exception under Galloway School Lines, 321 NLRB 1422 (1996) (Galloway) and its progeny, and economic policy.
The majority explicitly overruled Galloway and its progeny which expanded perfectly clear successor exception to situations in which a successor employer discriminatorily fails to hire some but not all predecessor employees to avoid a CBA. According to the majority, Galloway “goes too far” because it eliminates “the customary Burns’ right to set initial employment terms unilaterally even for an employer whose hiring discrimination is limited to a single predecessor employee” that deprives the union of majority status. Furthermore, the majority argued that the Galloway expansion undercut the “fundamental economic rationale in Burns” that provided a new employer with the ability to address financial concerns and preserve jobs when taking over a distressed business.
The decision explicitly leaves in place the holdings of Spruce Up Corp. and Love’s Barbeque which impose perfectly clear employer status on a successor employer if the employer either actively or tacitly misleads employees into believing that all the bargaining unit’s employees will be retained without a change in the terms and conditions of employment, fails to clearly announce its intent to establish a new set of conditions prior to inviting former employees to accept employment, or creates an ambiguity depriving the finder of fact with enough information to determine whether they would have retained all or substantially all of the predecessor’s workforce.
But, in the context of a successor employer that engages in discriminatory hiring practices and retains some but not all of the predecessor’s workforce, the NLRB has reoriented the focus of the inquiry for the purposes of the perfectly clear successor doctrine. The decision indicates that the inquiry is not whether the discriminatory practices affected enough employees to deprive the union of majority status, but whether the discrimination created uncertainty as to whether the employer planned to retain all or substantially all of the predecessor employees.
Consequently, as a result of the Ridgewood Health Care Center decision, a successor employer will forfeit its right to set the initial terms of employment and be forced to operate under the predecessor employer’s CBA only if it announces it will hire all the predecessor employees, or it either engages in discriminatory practices that result in a failure to retain all of the predecessor employees or creates an ambiguity depriving the finder of fact with enough information to determine whether they would have retained all or substantially all of the predecessor’s employee’s.