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Minor Changes to Business Do Not Allow New Owner to Ignore Existing Union Representation

    Client Alerts
  • April 20, 2018

When a buyer considers acquiring the assets of a unionized employer, the union’s status post-acquisition often becomes an important business consideration for pursuing the deal. In most situations, the buyer incorporates those purchased assets into its existing operations, or otherwise makes operational changes that allow it to take the position that it is not bound by the seller’s collective bargaining agreement. The buyer nevertheless may be required to bargain with the union as the continuing representative of the acquired employees. However, in some circumstances, the buyer’s continuing operations remain similar enough to those of the prior business that it will be considered a successor employer subject to the terms of the prior CBA.

Last month, the U.S. Court of Appeals for the D.C. Circuit concluded that the purchaser of assets of a bankrupt newspaper qualified as a successor employer. In Inversiones de Puerto Rico, Inc. v. NLRB, the court agreed with the NLRB that the purchaser’s changes to the paper’s operations were not substantial enough to disqualify the union from further representation. These changes included things like adopting a new motto, and changing the board of directors. The D.C. Circuit concluded that in order to avoid successor employer designation, the buyer must make substantial changes that make the prior union’s representation inapplicable to the new business structure. Although the prior CBA was negated during the bankruptcy proceeding, the court ordered the company to begin negotiations with the union to establish a new agreement.

Companies considering acquisition of unionized operations should carefully review both the current business as well as their plans for changing its operations after closing. While business rather than legal issues generally drive these changes, careful consideration and documentation of the differences between the old and new business’ actual operations can help avoid contentions that the purchaser merely steps into the shoes of the prior employer in terms of union representation and agreements.