Several big cities - including New York City, Los Angeles, Philadelphia, Providence, San Francisco, and Washington D.C. - have “worker retention” laws or regulations, which apply to private employers in various industries. The laws generally require that a new owner of a business retain the predecessor’s employees for some specified period of time or indefinitely. (President Obama’s Executive Order 13459, applicable to certain federal government contractors, imposes similar retention obligations by means of non-displacement regulations.) The NYC Displaced Building Service Workers Protection Act applies to cleaning workers in buildings.

Under the National Labor Relations Act, a successor can normally establish its own initial terms and conditions of employment unilaterally without bargaining with an established union unless it is a “perfectly clear” successor. Status as a “perfectly clear” successor, at the risk of over-simplification, may arise when it is “perfectly clear,” before the successor announces new terms and conditions of employment, that a majority of the new operator’s workforce will be former employees of the predessessor’s bargaining unit. A “perfectly clear” successor must generally bargain over initial terms and conditions of employment.

In GVS Properties, LLC, the NLRB indicated that the NYC law imposes successorship status on buyers of operations with employees covered by worker retention laws, and may, in the right circumstances, impose the obligations of “perfectly clear” successorhip.

GVS purchased buildings from another company and was required under New York City law to retain the predecessor’s custodial staff for an initial 90-day probationary period. The majority of an NLRB panel (Mark Gaston Pearce and Kent Hirozawa) found that GVS, by complying with NYC’s “worker retention” law, became a “perfectly clear” successor, with a duty to bargain. The Board found that GVS made a “conscious decision” to hire the workers when it took over the buildings, rejecting the employer’s argument that it retained the predecessor’s employees only on force of the NYC law. The Board, in dicta, indicated that a buyer-employer operating under such a law could avoid “perfectly clear” successorship by announcing its intent to establish new terms and conditions of employment before or simultaneously with its expression of intent to retain the workers.

The Board’s decision conflicts with a prior decision issued by a federal judge in New York. In Paulsen v. GVS Properties, LLC, which denied Section 10(j) injunctive relief in the case, the federal court ruled that GVS could not have made a conscious decision to “hire” the employees because the NYC law forced it to retain the employees for only a 90-day period.

Member Harry Johnson, dissenting, noted that the NLRB’s decision, which has municipal law driving a result under federal labor law, raises serious preemption issues. Federal courts may not agree with the NLRB, or they may find that state and local worker retention laws are preempted by federal labor law.

For companies that are considering an asset purchase or a contract bid for operations with employees subject to a worker retention law or non-displacement rules, the importance of the Board’s decision probably cannot be overstated. “Would-be owners” and federal contractors taking on ongoing operations should be aware of the many obligations of NLRA successorship and the “perfectly clear successor” doctrine. Purchasers or bidders who want to adopt their own terms and conditions of employment should be sure to state their intent before or when they announce an acquisition or bid and their plans to retain the workers, whether the retention is required by law or not.