New York City’s Displaced Building Service Workers Protection Act (DBSWPA) is one of numerous local worker retention laws, which apply to various industries in jurisdictions across the country, such as Los Angeles, San Francisco, Providence, Rhode Island, Washington D.C., and Philadelphia. These laws generally require new employers to retain a predecessor’s employees for a period of time. The DBSWPA applies to cleaning service employees in the New York City real estate industry. The recent National Labor Relations Board (NLRB) decision in GVS Properties, LLC, 362 NLRB No. 194 (Aug. 27, 2015) affects employers’ ability to set initial terms and conditions of employment, signals the NLRB’s desire to impose heightened obligations upon purchasers of a business, casts doubt on the constitutionality of worker retention laws, and is yet another bewildering decision by the NLRB.

Under the Supreme Court’s decisions in National Labor Relations Board v. Burns International Security Services, Inc.and Fall River Dyeing & Finishing Corp. v. National Labor Relations Board, a new employer is considered a “successor,” with an obligation to recognize and bargain with the union that represented the predecessor’s employees if: (i) the new employer continues its predecessor’s business in substantially unchanged form; and (ii) the employer has hired a substantial and representative complement of employees, and a majority of its work force consists of the predecessor’s employees. In GVS Properties, the NLRB analyzed when the new employer is deemed to have made the “conscious decision” to hire a substantial and representative complement of employees—upon taking over operations or upon the expiration of the DBSWPA’s 90-day retention period. In the latest in a long line of union-friendly rulings, the NLRB decided on the former.

The NLRB’s Decision

The NLRB rejected the employer’s argument that it could not have made a conscious decision to retain the predecessor’s employees during the transition period because it was forced to do so by the DBSWPA. The NLRB concluded that the employer “made the ‘conscious’ decision required by Burns and Fall River when it purchased the buildings and took over the predecessor’s business with actual or constructive knowledge of the requirements of the DBSWPA.”

This ruling is directly opposed to the U.S. District Court for the Eastern District of New York’s decision denying a 10(j) injunction in this very case. The district court in Paulsen v. GVS Properties, LLC had stated that “it is clear that a new employer cannot be deemed a Burns successor at the beginning of the 90-day period because it lacks the ability to choose whether to hire its predecessor’s employees at that point.”  Ultimately, the court reasoned,

The key to Burns is voluntariness. If the employer is legally precluded as a result of local law from terminating employees except on narrow grounds, then it cannot be held to have made the voluntary decision to become a successor.

Moreover, two previous administrative law judge (ALJ) decisions—in Novel Service Group, Inc. (January 15, 2015) andM&M Parkside Towers LLC (January 30, 2007)—also rejected the line of reasoning upon which the NLRB ultimately relied to hold that a new employer could not be evaluated as a successor until after the DBSWPA’s 90-day retention period had ended.

Key Takeaways

The truly troubling aspect of this decision is its potential future consequences for purchasers seeking to set initial terms and conditions of employment. In M&M Parkside Towers, the Counsel for the General Counsel (CGC) of the NLRB took the position that successorship status would not be determined until after the 90-day retention period. By the time that the GVS Properties decision was issued, the CGC had reversed course. Later, in Novel Service Group, the CGC in that case argued that the DBSWPA caused the new employer to be a “perfectly clear” successor, and, thus, that the DBSWPA required the new employer to maintain the existing terms and conditions of employment.  Although the NLRB in GVS Properties stated that a worker retention law wouldn’t automatically make a new employer a perfectly clear successor, given the current NLRB’s constant attempts to rewrite extant Board law, it is not unforeseeable that the NLRB could eventually rule this way. At the very least, employers subject to a worker retention law must be  careful in handling the transition of operations by not delaying in setting new terms and conditions of employment so as to not fall into the trap of becoming a perfectly clear successor. 

Additionally, the NLRB’s decision may put the constitutionality of worker retention laws at risk.  In 2011, the First Circuit Court of Appeals in Rhode Island Hospitality Association v. City of Providence, held that a Providence worker retention law covering the hospitality industry was not preempted by the National Labor Relations Act (NLRA) precisely because “Supreme Court caselaw on successorship stresses the voluntary and conscious decisionmaking by the new employer” and “the new employer has made no such ‘conscious decision’” during the law’s retention period. The First Circuit relied on the fact that, at that time, the ALJ and the CGC in M&M Parkside had taken this position, and the City of Providence conceded at oral argument that should the NLRB reverse course and take the position it eventually did inGVS Properties, the Providence worker retention law was most likely preempted. Shortly before the First Circuit issued its decision, the Supreme Court of California, in California Grocers Association v. City of Los Angeles, reasoned similarly in upholding a Los Angeles worker retention law in the grocery industry. However, in 1995, the U.S. Court of Appeals for the D.C. Circuit in Washington Service Contractors Coalition v. District of Columbia upheld a Washington D.C. worker retention law while implying that the law would not be preempted even if the NLRB ruled as it did in GVS Properties.

The NLRB in GVS Properties did, in fact, recognize the possibility that its decision could preempt worker retention laws, but it did not deem that consequence significant enough to alter its decision. Ultimately, the GVS Propertiesdecision may end the existence of local worker retention laws and thus may be one that ends up harming employees, rather than helping them.