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The National Labor Relations Board (NLRB) in Road & Rail Services Inc., 348 NLRB No. 77 (Nov. 30, 2006), recently held that a new employer did not unlawfully recognize a union and enter into a collective bargaining agreement with that union before hiring its work force because this employer was a “perfectly clear successor” to the prior employer. The decisions of the NLRB and courts defining the rights and obligations across the change in ownership and when the new employer takes over the service contract work performed by its predecessor constitute the law of successorship. This law provides neither a fixed definition of “successor” nor a uniformly accepted set of obligations that flow from the determination that, in certain circumstances, an employer is a “successor.” Successorship issues typically arise over allegations that a new employer violated its duty to recognize and bargain with the representative of the employees of the former owner. See 1 John Higgins, The Developing Labor Law (5th Ed. 2006) at 1103-04. Timing of a new employer’s bargaining obligation A new employer’s bargaining obligation normally does not attach until the majority of the new employer’s substantial and representative complement is comprised of the predecessor’s holdover employees. Until that time, the new employer may set initial terms and conditions unilaterally; thereafter, unilateral changes became impermissible. NLRB v. Burns International Security Services, 406 U.S. 272 (1972). However, the Supreme Court’s dictum in Burns carved out an exception for “instances in which it is perfectly clear that the new employer plans to rehire all of the employees in the unit.” In those situations, the court said that it will be “appropriate” for the new employer to “initially consult with the employees’ bargaining representative before [fixing] terms.” Id. at 274. When the employment offer is unequivocal, or when the new employer has committed to hire all of the incumbent unit employees (with no indication at the same time that they would be expected to work under new or different terms), the “perfectly clear” exception has been found. E.g., Canteen Co., 317 NLRB 1052, enforced, 103 F.3d 1355 (7th Cir. 1997). By contrast, it is not “perfectly clear” when the offer of employment is tentative or conditional upon acceptance of the terms offered. Spruce Up Corp., 209 NLRB 194 (1974), enforced, mem. 529 F.2d 516 (4th Cir. 1975). The board in Spruce Up stated: “[T]he caveat in Burns, therefore, should be restricted to circumstances in which the new employer has either actively or, by tacit inference, misled employees into believing they would all be retained without change in their wages, hours, or conditions of employment, or at least to circumstances where the new employer, unlike . . . here, has failed to clearly announce its intent to establish a new set of conditions prior to inviting former employees to accept employment.” 209 NLRB at 195. In Road & Rail Services, the employer, Road & Rail Services (R&RS), cleaned and prepared railroad cars. R&RS was awarded the contract to perform cleaning and preparation work at a number of railroad facilities, including the three at issue. The work at these three facilities had been performed by another company, Caliber, whose cleaning and preparation employees were represented by Shopmen’s Local 518. When R&RS took over the work from Caliber, there was a collective-bargaining agreement (CBA) in effect between Caliber and the union. After being awarded the service contract, R&RS informed the union that it intended to staff the three facilities with Caliber’s existing employees. In response, the union requested that R&RS recognize it, and R&RS agreed. Afterward, R&RS stated that it “desired to negotiate changed terms and conditions of employment” from those existing under the Caliber CBA. At no time did R&RS announce that it was setting new employment terms, or give any indication that it planned to set future terms unilaterally. R&RS thereafter confirmed its intention to retain a substantial portion of the complement of the represented employees, acknowledged an obligation to recognize the union and emphasized its desire to reach a mutually acceptable agreement quickly. R&RS then solicited applications from all of Caliber’s existing cleaning and preparation employees and commenced bargaining. The parties finalized their negotiations and executed a CBA that was to begin when the employees began work. The terms of the new CBA were substantially similar to those that existed under the Caliber agreement. R&RS made offers of employment to the Caliber employees about a week before commencing operations. Of the 23 employees R&RS hired, 20 had been employed by Caliber. Another union, Local 604 of the International Brotherhood of Teamsters, sought to organize employees at two of the locations, but could not because the CBA served as a bar to a representation proceeding. That union then filed a charge, and the general counsel ultimately brought this action before the NLRB. According to the majority opinion by members Peter C. Schaumber and Dennis P. Walsh, the particular circumstances of this case were within the Burns “perfectly clear” caveat because R&RS clearly informed the union of its intent to staff the three facilities with Caliber’s existing employees, which in fact it did. At the same time, R&RS gave no indication that it intended to invoke its right to establish initial employment terms unilaterally, and, in fact, R&RS did not unilaterally set any initial terms, but instead negotiated an agreement with the union. R&RS commenced operations with a work force of 23 employees, 20 of whom (87%) worked for its predecessor immediately before the takeover. And neither during the parties’ negotiations nor thereafter was there evidence of a loss of majority support for the union or evidence that the negotiations were anything other than bona fide, arm’s length dealings between the parties. The majority found it relevant that the changes were negotiated because there was a greater likelihood that the predecessor employees would choose to remain employed with the successor when it committed to conducting its hiring from the predecessor’s work force and announced that any changes to initial terms would not be made unilaterally, but only through negotiations. Finally, the majority stated that its construction of the Burns caveat is consistent with the very language of the case, where the Supreme Court recognized that there will be instances “in which it will be appropriate” to have the successor “initially consult with the employees’ bargaining representative before [fixing] terms.” According to the majority, “[t]his language plainly contemplates situations in which a successor will discuss with the employees’ union proposed changes in initial terms and conditions of employment.” In his dissent, Chairman Robert J. Battista asserted that R&RS acted unlawfully “by recognizing the Union and entering into a [CBA] with it prior to hiring any of the predecessor employer’s employees.” He said it was evident that R&RS “commenced bargaining with the Union before it was clear that the Union would have majority status.” According to Battista, “given [R&RS'] announced intention to change terms and conditions of employment, it was unclear how many predecessor employees would apply.” He further stated, “the significance of contemplated changes is that they render uncertain whether the predecessor employees will accept an employment offer made by the [successor], where the terms and conditions will differ from those that the employees enjoyed with the predecessor.” He therefore concluded, “In that fundamental sense, it makes no difference whether the changes are unilateral or negotiated” because until new terms are set, and the predecessor employees accept employment under these terms, it is not perfectly clear that the union will remain the majority representative. Successor did not make unilateral changes This is an unusual case because the successor did not make any unilateral changes and argued that it was a “perfectly clear” successor. In most cases, the successor argues the contrary, and that it was therefore permitted to make unilateral changes in the employment terms for the employees that it hired. While Battista would find a violation here based on the recognition of the union prior to the actual employment of the employees represented by the union, the Supreme Court in Burns recognized that in many cases “successor employers will find it advantageous not only to recognize and bargain with the union but also to observe the pre-existing contract rather than to face uncertainty and turmoil.” 406 U.S. at 291. It would therefore appear that the Supreme Court contemplated that the new employer and the union representing the predecessor’s employees could lawfully discuss and explore the possibility of the new employer assuming obligations of the former CBA or the obligation of negotiating a new CBA with the union, particularly when there is no showing that the employees have rejected continued representation by the union. Consultations during the transition period prior to the commencement of operations by the new employer serve the beneficial purpose of preserving employment opportunities for the predecessor’s employees while at the same time helping to insure stability in labor relations after operations commence. Should a sufficient number of the predecessor’s employees accept employment under the terms set forth by the new employer as to constitute a majority of the latter’s work force (like the 87% in the present case), then the employer is a successor. Should the predecessor’s employees reject employment under the terms offered, the employer is free to look elsewhere for its employees and is not a successor. Kenneth R. Dolin is a partner in the labor and employment practice group of Chicago’s Seyfarth Shaw.

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