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NLRB Rules on Successorship of Employers in Collective Bargaining Disputes

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).

The NLRB described the PCS rule in 1974 as a narrow exception that only requires a successor to negotiate under the terms of the prior CBA when it has “misled employees into believing they would all be retained without change in their wages, hours, or conditions of employment.” It has adjusted the rule at various times since then. In 1996, for example, the NLRB ruled that a successor employer is bound by the prior CBA “in situations where there is a virtual certainty that the union’s majority status will continue.”

The 2019 NLRB decision addressed a situation where the successor employer told the union that it intended to retain “99.9%” of union member employees, and that the existing CBA would remain in force. It ultimately retained only forty-nine employees who were union members and hired fifty-two new employees. It specifically refused to hire four union employees. This left the union without majority representation.

The NLRB found that the successor employer committed an unfair labor practice under the NLRA by refusing to hire the four union members. It ruled that the employer was therefore obligated to bargain with the union. The employer was not, however, bound by the previous owner’s CBA. The NLRB held that the PCS rule did not apply to the successor, finding that the successor did not create “uncertainty whether it would…have hired all or substantially all of the predecessor unit employees.”

If you are dealing with a dispute with an employer in New Jersey or New York, the employment attorneys at the Resnick Law Group are available to answer your questions and discuss your rights and options. Please contact us at 973-781-1204, at 646-867-7997, or through our website today to schedule a confidential consultation with a member of our team.

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