It is a common misconception that a company can avoid inheriting union obligations simply by structuring its purchase of another company as an asset sale instead of a stock sale. Buyers are often surprised to learn that they have gained a union, and all of the problems associated with a union, through their purchase.

A gravel company recently purchased mines, equipment, and other assets along with customers and employees from another company. The employees included 18 members of the International Union of Operating Engineers, 16 of whom the company retained after the asset purchase was finalized. The company, possibly operating on the belief that it had not inherited any union obligations, refused to recognize and bargain with the union.

An Administrative Law Judge found that the company was a successor and that the refusal to recognize and bargain with the union was unlawful. The judge explained that the company’s business remained a “substantial continuity” of the seller’s operations. To make matters worse, the judge also concluded that the company forfeited its right to set the initial terms and conditions of employment for these union employees. While a successor company typically has the freedom to set the terms and conditions of employment at the onset of the new employment relationship, this right can be forfeited. The judge found that the company forfeited this right by making comments to workers that the company intended to continue as a non-union enterprise and misleading workers into thinking they would be retained without any changes to the terms and conditions of employment.

Companies must be conscious of union obligations they could incur upon purchasing another company. It is very difficult to get rid of a union, so companies are advised to fully investigate a seller’s union status before finalizing a purchase.