Seyfarth Synopsis: In yet another pro-union, results-driven decision, the NLRB announces a new approach to evaluating whether an asset purchaser has forfeited its right to set initial terms and conditions when offering employment to a seller’s employees.

In Nexeo Solutions, LLC, 364 NLRB No. 44 (July 18, 2016), a split panel of the NLRB found that Nexeo Solutions lost its right to set initial terms and conditions of employment for the employees of Ashland Distribution’s Fairfield, California facility, which Nexeo acquired in an asset purchase. The employees were drivers, material handlers, and warehouse employees who had been represented by the Teamsters for approximately 18 years.

Under well-settled law, a purchaser is not typically bound by the collective bargaining agreement governing the seller’s employees, and instead the purchaser may set its own initial terms and conditions of employment. See NLRB v. Burns Security Services, 406 U.S. 272 (1972). The Supreme Court did, however, carve out an exception to the general rule when “it is perfectly clear that the new employer plans to retain all of the employees in the unit…” Id. at 294-95. These purchasers are known as “perfectly clear successors.” The NLRB then interpreted and expanded on the obligations of perfectly clear successors in Spruce Up Corp., 209 NLRB 194 (1974), enf’d. per curiam 529 F.2d 516 (4th Cir. 1975).

Under Spruce Up, a purchaser loses the right to set initial terms when “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 “where the new employer…has failed to clearly announce its intent to establish a new set of conditions prior to inviting former employees to accept employment.” Id. at 195.

The Union and amici, including the SEIU and the AFL-CIO, asked that the Board overturn Spruce Up as inconsistent with the Supreme Court’s decision in Burns. Rather than overrule Spruce Up, however, the Board instead stretched the perfectly clear successor analysis so that the facts of the case at hand would fit within the expanded meaning of the term.

In justifying its decision, the Board relied on the parties’ November 10, 2010 Purchase and Sale Agreement stating that the employees would be offered “(i) a base salary or wages no less favorable than those provided immediately prior to the Closing Date and (ii) other employee benefits, variable pay, incentive or bonus opportunities…substantially comparable in the aggregate” to those provided by the seller. Nexeo, 364 NLRB at 2 The Board also focused on the seller’s communications, rather than the buyer’s, with the employees. For example:

  • On November 7, 2010 an email from seller’s president was delivered via hard copy to the employees stating, “[W]e anticipate approximately 2,000 Ashland Distribution employees and dedicated resource group and supply chain partners will transfer to the new business.” Id.
  • On November 8, 2010 an employee Q&A was posted on the intranet and the bulletin board at the Ashland facility stating, “Under the terms of the agreement, for at least 18 months following closing, the newly independent company is required to provide, to each transferred employee, base salary and wages that are no less favorable than those provided prior to closing; and other employee benefits that are substantially comparable in the aggregate to compensation and benefits as of January 1, 2011.” Id. at 3.

The Board’s reliance on these communications completely disregarded the buyer’s later statements, which made it clear that any continued employment would be under new and different terms and conditions. The purchaser’s statements included the following:

  • On February 16, 2011, the purchaser met with the union business agent and provided a draft copy of an offer letter to be distributed to the employees. The letter stated, “[W]e think you should know that Nexeo Solutions has not agreed to assume any of Ashland’s collective bargaining agreements. We have chosen not to adopt, as initial terms and conditions of employment, any of the provisions contained in any current or expired collective bargaining agreement…” Id. at 4.
  • On February 17, 2011, the purchaser mailed the offer letters to the employees along with a document called “Your New Benefits at a Glance,” which detailed the changes to the employee’s health insurance, life insurance, and retirement benefits should they accept the offer. Id.

In relying so heavily only on the seller’s statements, the majority blurred the identity of the speaker and the time at which the buyer’s responsibility for communication kicks in. It held that the seller’s statements to the employees may be imputed to the purchaser for purposes of the perfectly clear successor analysis, a stark departure from the Board’s previous requirement that a perfectly clear successor have engaged in a misrepresentation to the employees in order to lose its right to set initial terms. Now, the purchaser’s obligation to notify the union of a change in terms and conditions may be triggered simultaneously with the seller’s effects bargaining obligation.

Member Miscimarra, dissenting, noted that “The new affirmative duty created by my colleagues is especially unfortunate because it will predictably have consequences–however unintended they may be–that will generate greater uncertainty for, and impose greater hardship on, employees and unions involved in a sale, transfer or other conveyance of operations.” Id. at 23.

As a result, Miscimarra noted that “[M]any potential successor employers will negotiate strict limitations on a predecessor’s ability to convey any information to its employees regarding their potential employment with the successor. Nothing in the NLRA requires purchasers to disclose their employment plans to the seller, and–in view of my colleagues’ decision–purchaser would be well advised to prohibit sellers from communicating anything to their employees and unions regarding the purchaser’s employment-related plans.” Id.

The Union has petitioned for the case to be reviewed by the Ninth Circuit. The employer has requested reconsideration by the Board. It is unclear whether the Ninth Circuit Court of Appeals will push back against the Board’s extraordinary encroachment on the buyer’s ability to set initial terms.

In the meantime, potential successors contemplating asset purchases from unionized sellers should:

  • Carefully review purchase agreements for any language that could trigger a perfectly clear successor obligation under the Board’s new standard including obligations to provide similar or comparable wages and benefits to the seller’s employees.
  • Negotiate strict limitations on the seller’s ability to communicate the terms of the deal to its employees or the ramifications of the deal on their continued employment.
  • Recognize that although the seller has an effects bargaining obligation, the purchaser may want to consider insisting that any communications by the seller to the employees be coupled with affirmations that any continued employment with the buyer will be under different terms and conditions of employment.
  • Potentially require that a decision on the initial terms and conditions of employment be made prior to execution of a purchase agreement including the terms of any communications regarding those initial terms.

Ultimately, employers will continue to face the difficult balancing required in order to achieve a smooth sale while assuaging employee anxiety against the potential inability to set initial terms of employment. For many purchasers, the inability to set initial terms and conditions of employment could destroy the viability of the deal itself, a result much worse for the employees created by the NLRB’s overreach.