If you are considering buying the assets of a business, beware! You should recognize that you could be held jointly and severally liable with the seller for any of the seller’s unfair labor practices. In Big Sky Hospitalities, LLC, 358 NLRB No. 83 (July 16, 2012), the NLRB recently reaffirmed potential successor liability for a predecessor’s unremedied unfair labor practices. In Big Sky, a hotel employer (Big Sky) was found to have committed a variety of violations of the NLRA, including refusal to bargain in good faith with its employees’ union, withdrawing recognition from the union, engaging in unlawful surveillance of union activities, interfering with union relationships, and the discharge of an employee because of union activities. While the case was being litigated before the NLRB, Big Sky sold the business assets of the hotel. The purchaser, Butte Hotels, continued to run the hotel with few operational changes, with a majority of its employees in “bargaining unit” positions having come from the seller.
Applying the Supreme Court’s decisions in Golden State Bottling Co. v. NLRB, 414 U.S. 168 (1973) and Burns Security Services v. NLRB, 406 U.S. 272 (1972), the NLRB held that because a majority of its employees in “bargaining unit” positions had been in the Big Sky bargaining unit, Butte Hotels was obligated to recognize Big Sky’s employees’ union. Moreover, because Butte Hotels “knew or should have known” when it bought Big Sky’s assets that Big Sky had been charged with unfair labor practices, it is reasonable to hold Butte Hotels liable along with Blue Sky to remedy such violations. The Supreme Court cases cited by the NLRB essentially reason that where a predecessor has a fair opportunity (e.g., through sale due diligence) to become aware of the seller’s potential unfair labor practices, and to account for them in the sale process (e.g., by including indemnification provisions in the purchase agreement, or in an extreme situation walking away from the deal), it is appropriate to make the purchaser jointly liable to further ensure that a remedy is available.
Big Sky is a further reminder to expressly include labor disputes within the scope of transaction due diligence, and to be conscious of how such potential liabilities are being addressed within the transaction agreements.