The United States Court of Appeals for the District of Columbia Circuit recently held in S&F Market St. Healthcare LLC v. NLRB that the National Labor Relations Board (NLRB) misapplied the “perfectly clear” successor doctrine wherein a successor employer is bound by the terms of a collectivebargaining agreement only when it is “perfectly clear” that the new employer intends to retain all of its predecessor’s bargaining unit employees without changing the terms and conditions of their employment.

S&F Market Street Healthcare LLC (S&F) purchased a nursing home from Covenant Care Orange Inc. (Covenant) in 2004. The nursing home was renamed Windsor Convalescent Center of North Long Beach after the purchase. Covenant had collective bargaining agreements with Service Employees International Union Local 434B covering two bargaining units of workers. S&F repeatedly expressed its intent to “implement significant operational changes” and made it clear that while certain Covenant employees would be hired on a temporary basis, and may be eligible to apply for regular employment, terms and conditions of employment would be those set forth in Windsor’s personnel policies and employee handbook. The union filed unfair labor practice charges after S&F refused to bargain with it, claiming that a representative complement of employees had not been hired as of yet. The NLRB found that S&F was a perfectly clear successor because it “failed to clearly announce its intent to establish a new set of conditions prior to inviting former employees to accept employment.”

The appeals court disagreed with the NLRB and stated that the “perfectly clear successor” doctrine “applies only to cases in which the successor employer has led the predecessor’s employees to believe their employment status would continue unchanged after accepting employment with the successor.” The court cited NLRB v. Burns International Security Services where the United States Supreme Court discussed the “perfectly clear” exception and found that “successor employers are not bound by the substantive provisions of a collective-bargaining contract negotiated by their predecessors but not agreed to or assumed by them” except for “instances in which it is perfectly clear that the new employer plans to retain all of the employees in the unit.” Thus, the appeals court held that the NLRB misapplied the doctrine since “no employee could have failed to understand that significant changes were afoot” under S&F’s management. Importantly, while a new employer is required to make it clear that it intends to establish new terms, the employer does not have to announce the specific new terms that will be put in place prior to the succession.