A collective bargaining agreement (CBA) is a contract between a labor union, which is legally authorized to negotiate on the employees’ behalf, and the company that employs the union’s members. When ownership of a business changes hands, the new owner is only subject to all of the terms of an existing CBA if it is a “perfectly clear successor” to the previous owner. The National Labor Relations Board (NLRB) developed a set of guidelines, known as the “perfectly clear successor” (PCS) rule, based on a 1972 ruling by the U.S. Supreme Court. In April 2019, the NLRB issued a ruling that seems to limit the scope of the PCS rule.
The National Labor Relations Act (NLRA) prohibits employers from interfering with or restraining efforts by employees to organize for the purpose of collective bargaining, either by forming a union or joining an existing organization. Employers may not discriminate or retaliate against employees who exercise any of the rights protected by the statute. Once an employer and a union enter into a CBA, the employer commits an unlawful act if it refuses to negotiate with its employees’ authorized representative.
In 1972, the Supreme Court ruled that a successor employer must recognize a union’s authority when it has retained a majority of the union members as employees. This does not mean, however, that the successor employer is bound by the substantive terms of its predecessor’s CBA. The court held that a successor is not bound by the old CBA and is therefore free to set the initial terms for employment, unless “it is perfectly clear that the new employer plans to retain all of the employees in the unit.” NLRB v. Burns Int’l Security Services, Inc., 406 U.S. 272, 294-95 (1972).