When organizations are seeking to expand their operations, they often will find interesting targets who have union-represented employees. A union’s presence will create additional compliance obligations but contrary to common misconceptions, union-related obligations are not necessarily unmanageable.

In a recent case, which arose after new owners took over a skilled nursing home facility, the National Labor Relations Board reiterated the standards that will determine whether a buyer must recognize the seller’s former labor union, retain former union-represented employees and bargain with that union before initially determining the wages, hours, and other working conditions at the organization. Ridgewood Health Care Center, Inc., 367 NLRB No. 110 (Apr. 2, 2019). The Board also clarified an existing rule in a way that will reduce the potential risk for a buyer.

  1. The Board reiterated that, generally, a buyer must recognize the seller’s union if both (a) the buyer operates the organization the same as before and (b) the buyer retains a majority of the union-represented employees.

A threshold question in these situations, when a buyer acquires a unionized entity, is whether the buyer must recognize the union as the employees’ representative. This will not necessarily occur in every situation. As the Board reiterated in Ridgewood, the buyer must recognize the seller’s labor union if (a) the buyer runs the operation essentially the same way as the seller (the “substantial continuity” element) and (b) the buyer hires enough of the seller’s employees that they constitute a majority of the employees in a new appropriate bargaining unit (the “majority” element). Under the facts at issue in Ridgewood, the buyer operated the nursing facility at the same location as before and provided the same types of services to the same clientele. So, there was no dispute that the buyer satisfied the substantial continuity element. As noted below, however, the majority element can create a more nuanced question.

  1. An employer may not decline to hire union-represented employees in an effort to avoid recognizing the union.

In Ridgewood, the Board also flagged an issue that can create a trap for unwary buyers. The Board reiterated that it is unlawful for a buyer to decline to retain union-represented employees in an effort to avoid satisfying the majority element above. In other words, if the buyer fills an existing position by hiring from the outside, rather than retaining the union-represented employee who previously held the position, the buyer must have a legitimate business reason for doing so (and that reason cannot be a desire to avoid a labor union). If the buyer discriminates on the basis of union membership when it is filling positions, the Board will deem the buyer to have satisfied the majority factor and the Board also will issue other penalties (including reinstating the employees who experienced discrimination).

In the case at hand, Ridgewood’s new owners had retained just 49 of the 101 union-represented employees before the sale. Thus, on its face, they narrowly avoided satisfying the majority element. However, this ‘narrow miss’ raised eyebrows at the Board and a Board judge ultimately determined that the employer had declined to hire at least four employees due to their union membership. Accordingly, the Board ordered the new owners to recognize the union as the employees’ representative, and to rehire these four additional employees.

  1. Although the buyer often may set the initial wages, hours, and other terms of employment, the Board clarified when the buyer must bargain first.

The Board also addressed another common question that arises after sales of union-represented entities. At default, even if the buyer operates the organization the same, and even if the buyer retains enough employees to satisfy the “majority” element, that does not necessarily require the buyer to bargain with the union before setting initial wages, hours, and other terms of employment. Rather, at default, the buyer may determine the initial working conditions that will apply after the sale, with the understanding that the buyer may need to bargain with the union after that (unless there is an existing contract).

However, like most Board doctrines, this rule has exceptions. The Board has long recognized that a buyer must bargain with a union before setting initial terms of employment if the buyer makes itself a “perfectly clear” successor. A buyer will make itself a perfectly clear successor if the buyer has said or done something that will cause the union-represented employees to believe the buyer will retain “all or substantially all” of them without changing their wages, hours, or other conditions of employment. Obviously, given this and other rules, buyers should be very careful when describing their plans for union-represented employees.

Finally, in Ridgewood, the Board described how anti-union discrimination will affect this “perfectly clear” successorship doctrine as well. For the past several years, the Board took the position that an employer could become a perfectly clear successor as well (rather than merely having to recognize the union) if the employer discriminated against some union-represented employees when staffing the organization or otherwise proceeding after the sale. In Ridgewood, however, the Board slightly narrowed this rule, and held that an employer’s discrimination would make it a perfectly clear successor only if the discrimination affected “all or substantially all” of the union-represented employees.

Here, where the Board found that the buyer discriminated against four of the 101 union-represented employees, that was enough to require the buyer to recognize the union but not bargain before setting initial terms and conditions of employment. Nevertheless, a buyer should take care when deciding whether to retain union-represented employees, because any discrimination could create serious consequences.