On September 30, 2014, the National Labor Relations Board (NLRB or the Board) in Pressroom Cleaners, Inc. overturned Board precedent regarding the appropriate remedy in successorship cases, holding that a successor employer must reinstate all terms and conditions of the previous employer until it reaches an agreement or impasse with the union – even if it can be shown that the successor never would have agreed to those terms if it had negotiated lawfully at the time of the takeover.

Successor Obligations Generally

The National Labor Relations Act (NLRA) places certain bargaining obligations on a successor employer. A company is deemed to be a “successor” employer under the NLRA when a company takes over or buys out another company but conducts essentially the same business at the same location, with the same employees. If the predecessor’s employees were represented by a union, the successor company must recognize and bargain with that representative if the predecessor’s employees make up a majority of the successor company’s workforce.

Importantly, the successor company is not bound by the substantive terms of the predecessor’s collective-bargaining agreement and is free to set initial terms and conditions of employment at its discretion. However, the new employer loses that right if it refuses to hire the predecessor’s employees due to their union affiliation. When the successor employer discriminates against union employees, the successor must “maintain the status quo by continuing the predecessor’s terms and conditions of employment” until the parties reach a new agreement or impasse.

NLRB Precedent

Under previous NLRB decisions, even when alleged discrimination in hiring union-affiliated workers of a predecessor company occurred, a successor company could limit its liability by showing that, if it had negotiated lawfully at the time of the takeover, it would not have agreed to the terms of the predecessor’s contract. Under those circumstances, the successor company could introduce evidence proving the more limited terms to which the successor would have agreed. If successful, the successor company would then have to institute only the limited terms while it negotiated a new collective bargaining agreement with the union.

Pressroom Cleaners Decision

In Pressroom Cleaners, the NLRB eliminated the successor defense outlined above. Specifically, the Board found that a cleaning company – after placing a successful bid on a janitorial services contract – refused to hire six employees from the previous cleaning company because of their union affiliation. As a result, the NLRB held that the successor forfeited its rights to institute its own terms and conditions and was required to reinstate the predecessor company’s terms and conditions under the prior collective bargaining agreement, until the parties reached a new agreement. In so holding, the Board expressly overruled earlier precedent and held that the employer must – without exception – institute the predecessor employer’s terms, even if the new company never would have agreed to those conditions if it had negotiated lawfully.

This change can have dramatic consequences for employers. In Pressroom Cleaners, for example, the successor company now has to reinstate its predecessor’s policies three years following purchase. As a result, Pressroom Cleaners might have to provide back pay and other benefits to employees during the covered period if its pay scale is lower than that of its predecessor.

The Pressroom Cleaners case is yet another example of the current NLRB’s willingness to overturn Board precedent. As we have detailed in several client alerts, we expect the NLRB to continue issuing decisions that significantly alter well-established law. Therefore, employers should continue to monitor developments from the NLRB closely.