NLRB Overturns Rule and Clarifies a Successor Employer’s Right To Set Initial Terms of Employment

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In Ridgewood Health Care Center, Inc., a 3-1 majority of the National Labor Relations Board overruled a Clinton-era Board decision (Galloway School Lines) that held that if a successor employer discriminates in the hiring of any of the predecessor’s employees, that successor loses its right to set initial terms and conditions of employment different from the predecessor; a right which was established in 1972 by the Supreme Court in Burns Security Services, Inc.

When Ridgewood took over operation of a USW-represented nursing home from the predecessor, Preferred Health Holdings (Preferred) in October 2013, 101 individuals accepted employment. Of those, 49 were former Preferred employees, and 52 were newly hired employees. Ridgewood refused to bargain with the union because the union lacked majority status. However, an administrative law judge (ALJ) found that Ridgewood had violated the National Labor Relations Act by refusing to hire four former employees of Preferred, which would have established majority support on behalf of the union. The Board agreed on this point, holding, “It is well established that when a new employer would have hired a majority of its unit employees from the predecessor’s unionized workforce, but for the new employer’s discrimination based on antiunion animus, the Board will deem the new employer a successor with an obligation to bargain with the Union.” The Board thus held that upon commencing operations, Ridgewood was a legal successor to Preferred, and it was obligated to recognize and bargain with the union as the representative of the employees.

The majority of the Board, however, disagreed with the ALJ regarding when the obligation attached and held that Ridgewood was not obligated to bargain with the union prior to setting different initial terms and conditions of employment. The Board’s analysis first pointed out that the Supreme Court, in Burns, allowed for a possible exception to the general rule that a successor is free to set initial terms and conditions of employment. In dictum, the Burns Court said “Although a successor employer is ordinarily free to set initial terms … there will be instances in which it is perfectly clear that the new employer plans to retain all of the employees in the unit and in which it will be appropriate to have him initially consult with the employees’ bargaining representative before he fixes the terms.” Thereafter, in Spruce Up (1974), the Board held that the “perfectly clear” exception was a narrow one in which the new employer misleads employees into believing they would all be retained or in circumstances where the new employer failed to clearly announce its intent to set new employment conditions prior to offering the former employees employment.

Subsequent to Spruce Up, in Love’s Barbeque (1979), the Board dealt with the situation in which an employer’s unlawful discriminatory hiring practice aimed at evading the employment of any of the predecessor’s employees. This created an ambiguity making it impossible to determine whether the employer would have hired a majority of the predecessor’s employees absent the discrimination. Given this ambiguity, the Board held that the new employer would have retained all of the employees absent the discrimination and therefore, under Spruce Up, it was not entitled to set initial employment terms. In the 1996 Galloway case the Board extended this further, holding that the remedy in Love’s Barbeque was appropriate even in circumstances where it is perfectly clear that absent unlawful conduct the successor employer would not have hired all or substantially all of the predecessor’s employees.

In Ridgewood, the Board considered this 1996 analysis in Galloway, and noted that since Love’s Barbeque, its remedial doctrine had only been applied where discriminatory hiring practices made it impossible to know who would have been hired. The Board further noted that the Clinton-era Board’s decision in Galloway was the first time the Board had applied the Love’s Barbeque remedy where the successor employer only discriminatorily failed to hire some, but not all, of the predecessor’s employees. The Ridgewood Board thus concluded the majority in Galloway “impermissibly tore the Love’s Barbeque remedy from its doctrinal roots” and, in doing so, went far beyond the narrow “perfectly clear” successor exception contemplated by the Court in Burns. The Board therefore overruled Galloway School Lines.

In Ridgewood, the Board found that 65 Preferred employees were not hired and there was no claim of discrimination. Thus, Ridgewood failing to hire four Preferred employees for discriminatory reasons did not create any uncertainty as to whether it might have been a perfectly clear successor. Accordingly, the Board found that Ridgewood as a Burns successor was able to establish new terms and conditions of employment, and the obligation to bargain with the union attached thereafter.

The Ridgewood Health Care holding, as the Spruce Up decision before it, further narrows the circumstances when a Burns successor will not be able to set its own terms and conditions of employment and according to the Board the “obvious and compelling rationale for this economic freedom” is set forth in the Burns decision itself.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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