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Successorship issues often arise when a new employer purchases the assets and assumes operations of another employer whose employees are represented by a labor union. The obligations and rights of the new employer, the affected employees and their union will depend on a variety of factors, including the nature and structure of the transaction and whether the new employer is deemed to be a successor employer. While some general rules have been developed to determine a successor employer’s bargaining obligations, the National Labor Relations Board and the courts continue to revise and refine the law surrounding a successor’s obligations to bargain. This column examines two noteworthy cases decided this past July that dealt with bargaining rights and obligations in the successorship context: the board’s decision to overturn the “successor bar” rule in MV Transportation, 337 NLRB No. 129, 2002 WL 1610067 (N.L.R.B. July 17, 2002), and the 6th U.S. Circuit Court of Appeals’ decision in Dupont Dow Elastomers, L.L.C. v. N.L.R.B., 296 F.3d 495 (6th Cir. 2002), which applied the “perfectly clear” successor exception to find that a joint venture was required to consult with incumbent unions before setting the initial terms and conditions of employment. SUCCESSOR BAR REJECTED For most of the past three decades, when addressing challenges to a union’s majority status in the successor context, the board has applied Southern Moldings, Inc., 219 NLRB 119 (1975), which provided that an incumbent union recognized by a successor is entitled to only a rebuttable presumption of continued majority status, which does not serve as a bar to an otherwise valid challenge to the union’s majority status, such as a decertification, rival union or employer petition. Three years ago in St. Elizabeth Manor, Inc., 329 NLRB 341 (1999), the board sought to promote bargaining relationship stability by deciding 3 to 2 to adopt what it called a “successor bar rule,” which granted unions “a reasonable period of bargaining without challenge to [their] majority status” once a successor’s obligation to recognize an incumbent union attaches. 329 NLRB at 344. This past summer the board reinstated the Southern Moldings’ rebuttable presumption standard in MV Transportation. The case involved an employee decertification petition filed after the successor employer had recognized and had several meetings with the union. The regional office of the board applied St. Elizabeth Manor and administratively dismissed the petition, but on review the board overruled St. Elizabeth Manor 3 to 1, indicating that its reasoning was “faulty” and “plainly insufficient to warrant such an abrupt departure from longstanding Board and court precedent.” 2002 WL 1610067, at 1. In reaching its conclusion, the board majority found that the rationale for insulation periods in the initial union recognition and certification stages does not carry over to the successor context, where the union and the employees will likely have some history together and the incumbent union may very well know more about the operation of the facility than the new employer. The majority further noted that with respect to fostering bargaining relationship stability, if a large percentage or majority of employees are truly disenchanted with their representation, then the situation in all likelihood has reached “maximum instability, and to fail to resolve the issue with a Board-conducted election simply aggravates the instability further.” Id. at 8. In her dissent, Member Liebman argued that the successor bar rule was the more sound policy given the realities of today’s marketplace. In particular, she noted the dramatic proliferation of corporate merger and acquisition activity since Southern Moldings was decided and the attendant rise in layoffs, fear and anxiety that has accompanied it, all of which, in her view, destabilize relations not only between labor and management, but also between unions and the workers they represent. PERFECTLY CLEAR SUCCESSOR In Dupont Dow Elastomers, the 6th Circuit affirmed the board’s finding that Dupont Dow Elastomers (DDE), a joint venture formed by Dow Chemicals and E.I. DuPont de Nemours Co., was required to bargain with existing unions over initial terms and conditions. DDE had indicated to the predecessors’ employees and their unions that it was not going to assume the existing collective bargaining agreements, but that it would maintain the wages and benefits under them and that all of the employees would receive offers of employment. With the exception of adding a success bonus sharing plan, DDE did not indicate to the employees or the unions that there would be any change in the terms and conditions of employment at the time it extended offers of employment. The court began its analysis by noting that whether a new employer has an obligation to negotiate over initial terms in such circumstances “depends on whether the new employer is an ordinary successor or a ‘perfectly clear successor.’” 296 F.3d at 500. Although as a general rule “a new employer is generally free to set the initial terms of employment for the employees of a predecessor, without bargaining with the incumbent union … where it is ‘perfectly clear’ that the new employer intends to retain the unionized employees of its predecessor as a majority of its own work force under essentially the same terms as their former employment, then the new employer becomes a ‘perfectly clear successor’ and must bargain with the union.” Id. at 500-01 (citing N.L.R.B. v. Burns Int’l Sec. Serv. Inc., 406 US 272 (1972) and Fall River Dyeing & Finishing Corp. v. N.L.R.B., 482 US 27 (1987)). After reviewing the facts before the board, the court found that it was “quite apparent that DDE wanted to retain DuPont’s trained workers given its belief that ‘the success of the new joint venture depended on the continuing employment of this work force,’ and that it crafted its communications and negotiations with its predecessors’ employees to ensure that DDE would not lose these experienced employees to other employers.” Id. at 502. Because it had created the impression that there were to be no changes and failed to make any sufficiently clear or definite statements to the contrary, the court held that DDE was “a perfectly clear successor to DuPont and Dow and was therefore obligated to bargain with the Unions prior to setting the initial terms and conditions of employment.” Id. at 503. DDE argued that it had not hired workers on the same terms and conditions because it had added the success-sharing plan, but the court found that the sharing plan was actually just “a hiring incentive designed to induce DuPont employees to accept employment with DDE [which] helped to insure DDE’s status as a perfectly clear successor.” Id. DDE also argued that the outcome of the case would hurt workers because it would encourage new employers to offer lesser terms than employees were already receiving in order to obtain the right to set initial terms and conditions. The court noted that if employers did adopt such tactics, they ran the risk of losing experienced workers who might reject such offers. Id. Finally, DDE argued under Peters v. N.L.R.B., 153 F.3d 289 (6th Cir. 1998), it was not a perfectly clear successor so long as it announced new employment conditions prior to or immediately after commencing operations. The court distinguished Peters, noting that DDE had “directly and by ‘tacit inference’ mislead the union workers about its intentions” with respect to the terms and conditions of employment. Id. at 505. The court concluded that to the extent that Peters could be read to allow DDE to lure experienced employees into accepting jobs by offering the same terms and conditions only to have those terms and conditions later changed before or immediately after starting operations, it could not be reconciled with the Supreme Court’s decision in Burns, creating the perfectly clear successor exception, or with prior 6th Circuit case law, and was therefore not binding on the court. Id. at 506. CONCLUSION Successorship issues are often resolved by application of well-developed rules from an established body of case law. The board, however, has demonstrated a willingness to change at least some of these rules in a relatively brief period of time. Generally, resolution of successorship questions is heavily fact-driven, with the outcomes varying dramatically depending on the employer’s conduct. Practitioners are well advised to keep informed of developments in this area. Generally, resolution of successorship questions is heavily fact-driven, with the outcomes varying depending on the employer’s conduct. John P. Furfaro is a partner at the firm of Skadden, Arps, Slate, Meagher & Flom, (www.skadden.com) and Maury B. Josephson is a principal in the Law Office of Maury B. Josephson,(www.lawyers.com/mauryjosephson). Louis D. Wilson, an associate at Skadden Arps, assisted in the preparation of this article.

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