On September 3, 2019, in First Student, Inc. v. NLRB, __ F.3d __ (D.C. Cir. 2019), the court upheld the National Labor Relations Board’s application of the “perfectly clear” doctrine in First Student Inc. v. NLRB, 366 NLRB No. 13 (February 6, 2018). The “perfectly clear” doctrine affects the right of a labor law successor, which acquires a unionized business, to set new terms and conditions of employment. Thus, it can have an important impact on the economics of the commercial transaction.

Normally, the buyer of a unionized business becomes a labor law successor when it continues the predecessor’s business and hires a majority of its employees from among the predecessor’s represented employees. A successor/buyer must recognize and bargain with the union representing the predecessor’s employees, but it need not adopt the predecessor’s collective bargaining agreement. Instead, normally, the buyer will be free to set its own initial terms and conditions of employment.

Importantly, however, the right to set initial terms may be lost if the buyer misleads employees into believing that they will be retained without changes to their terms and conditions of employment. This will be deemed the case if the buyer makes offers to hire (or consider for hire) the predecessor’s represented employees before it announces its intention to set new terms. In such a case, the buyer will be deemed a perfectly clear successor, and the existing terms will continue to apply unless and until they are changed through bargaining with the union. (Note that these existing terms are not the union contract itself, but the terms required under that contract.)

A successor employer generally can avoid “perfectly clear” successor status if it announces its intent to establish a new set of terms and conditions prior to or simultaneously with inviting the former employees to accept employment. However, if it the buyer is deemed a “perfectly clear” successor, sections 8(a)(1) and (5) of the NLRA prohibit it from unilaterally changing the pre-existing terms and conditions without bargaining with the employees’ union.

The principal question in First Student was whether the buyer had lost its right to set initial terms and conditions. This is a fact intensive analysis, and the initial fact finder—the Board administrative law judge—had found that the buyer had not lost the right to set initial terms. But the Board majority, affirmed by a court of appeals majority, reversed the judge and found that the buyer failed to clearly state that it intended to change the terms before it stated its intention to hire.

The Board, affirmed by the court, found that after the bid for busing services had been awarded by the school district, but before the contract with the district was fully negotiated, the buyer met with existing employees and told them that it would offer employment to current employees who submitted an application and met its hiring criteria and that it intended to keep the terms and conditions of employment, including wages and hours, substantially the same. Two months later, after the busing contract was approved by the school district, the buyer/successor employer attempted to set new terms and conditions and instituted wage and hour reductions.

In affirming the Board’s finding of a violation, the D.C. Circuit noted that the busing contractor “did not announce the impending changes to the terms and conditions of employment under the [u]nion’s former CBA until after the [school district] had approved the contract” and that the successor busing company had “publicly declared that it ‘intended to maintain the wages for the current work force’” prior hiring the existing drivers. The Court held that the Board reasonably interpreted the perfectly clear successor standard and correctly applied it to the facts at issue, stating that “the Board could reasonably conclude that First Student had engaged in the sort of misleading conduct that the ‘perfectly clear’ successor doctrine is meant to prevent.”

There were vigorous dissents at both the Board and the court. And while the finding of “perfectly clear” is in the end essentially a factual question, the standards governing the application of those facts (e.g., whether the “perfectly clear” doctrine only applies when a buyer intends to hire all of the predecessor’s union-represented employees), may yet be the subject of future decisions by the current Board.

The bottom line is that a buyer acquiring an operation with a unionized workforce must be very careful when communicating with the seller’s employees. If the buyer wants to avoid becoming a “perfectly clear” successor, it must not express an intent to hire or consider for hire without beforehand or simultaneously making it plain that any hiring will be only on the basis of the buyer’s new terms and conditions of employment, not the existing ones.