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Buyer Beware: Unwary Business Purchasers Could Be Unknowingly Buying Into a Union

Submitted By Firm: Miller Nash Graham & Dunn LLP

Contact(s): Michael Porter, Susan Stahlfeld


Wayne Landsverk

Date Published: 7/3/2014

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No one likes surprises when buying a company, particularly when it comes to labor relations and union obligations. Unfortunately, surprises are all too common in the area of successorship—that is, how and when a buyer of a business inherits a duty to recognize and bargain collectively with a union that previously represented the seller's employees, or might even be required to abide by the actual union contract that existed between the seller and the union.

These have always been serious matters, but recently the General Counsel of the National Labor Relations Board upped the ante by taking what he termed a "particular interest" in them. In April, the General Counsel issued a memorandum instructing the NLRB's regional offices to submit all cases involving an alleged successor's refusal to bargain, as well as claims that a successor has discriminatorily refused to hire the seller's employees, to the NLRB's injunction litigation branch. This means that if there is a claim that your newly purchased business is a successor to a union contract or collective bargaining obligations, the NLRB might very well go to court and seek to stop the transaction in its tracks or force the seller and buyer to unwind it.

In light of this heightened scrutiny, prospective buyers need to be sure that they make appropriate inquiries regarding union issues as part of their due diligence. At a minimum, the acquiring firm will want to know answers to the following questions:

1. Does the seller have a collective bargaining agreement with a labor union?

If so, and if the acquisition is a "stock deal"—in which the stock of the predecessor corporation is purchased—the buyer essentially steps into the shoes of the selling company, and all contractual obligations, including union contracts, nearly always pass on to the purchaser. By contrast, if the acquisition is an "asset purchase," the purchaser will ordinarily not be bound to the terms of the seller's union contract, but it may be obligated to bargain with the union over terms and conditions of employment, depending on the circumstances.

2. If the seller has a union contract, does it limit the seller's right to sell or transfer its assets?

Some collective bargaining agreements include "successors and assigns" provisions. This language typically states in grandiose terms that the contract is binding on the signatory company and all entities that succeed to its interest. If the company is sold, the "successor clause" purports to require the seller to secure the buyer's agreement to assume the terms of the contract.

Such clauses are increasingly a top priority of unions. Although this language is not binding on the purchaser, it can create substantial confusion and delay in the purchase. In some cases, courts have enjoined transactions pending a labor arbitration between the seller and its union to determine whether the seller breached its obligations under the "successors and assigns" clause. If a buyer discovers that the seller's labor agreement contains such a provision, it should ensure that the seller has fully resolved all issues with the union to avoid any risk that this language would create problems after the deal has closed.

3. Even if there is no labor contract, is any part of the seller's workforce represented by a union?

If so, and if there is continuity between both the enterprises and in the workforce—that is, if a majority of the employees of the new enterprise were employed by the predecessor—then the buyer will be considered a successor and bound to recognize and bargain with the "old" union.

An asset purchaser is ordinarily entitled to set initial terms and conditions of employment before bargaining, including wages, benefits, work rules, and all other terms and conditions of employment until a new contract is bargained. This important privilege can be lost, however, if the successor is found to be a "perfectly clear" successor. The U.S. Supreme Court has held that a successor employer is not privileged to set initial terms and conditions of employment for its newly hired workforce if it is perfectly clear that the new employer plans to retain all the employees in the unit. Thus, if an asset buyer is found to be a "perfectly clear" successor, it will be bound to recognize all the existing terms and conditions of employment, including the preexisting contract's provisions, until a new contract is bargained with the union.

In applying the "perfectly clear" exception, the NLRB scrutinizes not only the successor's plans regarding the hiring of the predecessor's employees, but also the clarity of its intentions concerning existing terms and conditions of employment. In some cases, a bargaining obligation has been imposed under the "perfectly clear" exception based on the successor's silence as to changing or continuing the existing working conditions at the time it indicated that it would be hiring the predecessor's employees. The NLRB has also applied the "perfectly clear" exception when the new entity retained the entire predecessor bargaining unit, but also indicated that at some time in the future it would implement certain unspecified changes in terms and conditions of employment.

The lesson for an asset purchaser is "perfectly clear." To retain the privilege to unilaterally set initial terms and conditions of employment, the successor employer must clearly announce its intent to establish a new set of conditions before inviting former employees to accept employment. By contrast, an employer that promises to hire a predecessor's employees, but announces vague, undefined changes in their employment terms starting on some future date, likely will be obliged to negotiate those changes with the statutory bargaining representative.

In any "successorship" situation, early planning is essential. Even though an employer may be a "successor," it can still retain substantial flexibility. The opportunity to define the terms and conditions of employment, however, can be easily lost if appropriate steps are not taken in the transition process.


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Altra Industrial Motion Inc.

Altra Industrial Motion Inc. has multiple locations in the U.S., as well as Central America, Europe, and Asia. The Employment Law Alliance has proved to be a great asset in assisting us in dealing with employment issues and matters in such diverse venues as Mexico, Australia, and Spain. We have obtained excellent results using the ELA network for matters ranging from a multi-state review of employment policies to assisting with individual employment issues in a variety of foreign jurisdictions.

In one instance, we were faced with an employment dispute with a former associate in Mexico that had the potential for substantial economic exposure. The matter had been pending for over a year, and we were not confident in the employment advice we had been receiving. I obtained a referral to the ELA counsel in Mexico, who was able to obtain a favorable resolution of the dispute in only a few days. Based on our experiences with the ELA, we would not hesitate to use its many resources for future employment law needs.

American University in Bulgaria

In my career I have been a practicing attorney, counsel to the Governor of Maine, and CEO of a major public utility. I have worked with many lawyers in many settings. When the American University in Bulgaria needed help with employment litigation in federal court in Syracuse, New York, we turned to Pierce Atwood, the ELA member we knew and trusted in Maine, for a referral. We were extremely pleased with the responsiveness and high quality of service we received from Bond Schoeneck & King, the ELA's firm in upstate New York. I would not hesitate to recommend the ELA to any employer.

David T. Flanagan
Member of Board of Trustees 

Arcata Associates

I really enjoyed the Conducting an Effective Internal Investigation in the United States webinar.  We are in the midst of a rather delicate employee relations issue in California right now and the discussion helped me tremendously.  It also reinforced things that you tend to forget if you don't do these investigations frequently.  So, many, many thanks to the Employment Law Alliance for putting that webinar together.  It was extremely beneficial.

Lynn Clayton
Vice President, Human Resources

Barrett Business Services, Inc.

I recently participated in the ELA-sponsored webinar on the Employee Free Choice Act.  I was most impressed with that presentation.  It was extremely helpful and very worthwhile.  I have also been utilizing the ELA's online Global Employer Handbook.  This compliance tool is absolutely terrific. 

I am familiar with several other products that purport to provide up-to- date employment law information and I believe that this resource is superior to other similar compliance manuals.  I am delighted that the ELA provides this free to its members' clients.

Boyd Coffee Company

Employment Law Alliance (ELA) has provided Boyd Coffee Company with a highly valued connection to resources, important information and learning. With complex operations and employees working in approximately 20 states, we are continually striving to keep abreast of specific state laws, many of which vary from state to state. We have participated in the ELA web seminars and have found the content very useful. We appreciate the ease, cost effectiveness and quality of the content and presenters offered by these web seminars.  The Global Employer Handbook has provided our company with a very helpful overview of legal issues in the various states in which we operate, and the network of attorneys has helped us manage issues that have arisen in states other than where our Roastery and corporate headquarters are located in Portland, Oregon.

Capgemini Outsourcing Services GmbH

As an international operating outsourcing and consulting supplier Capgemini has used firms of the Employment Law Alliance in Central Europe. We were always highly satisfied with the quality of employment law advice and the responsiveness. I can really recommend the ELA lawyers.

Hirschfeld Kraemer

As an employment lawyer based in San Francisco, I work closely with high tech clients with operations around the globe. Last year, one of my clients needed to implement a workforce reduction in a dozen countries simultaneously. And they gave me 48 hours to accomplish this. I don't know how I could have pulled this off without the resources of the ELA. I don't know of any single law firm that could have made this happen. My client received all of the help they needed in a timely fashion and on a cost effective basis.

Stephen J. Hirschfeld

Hollywood Entertainment Corporation

As the Vice President for Litigation & Associate General Counsel for my company, I need to ensure that we have a team of top-notch employment lawyers in place in every jurisdiction where we do business. And I want to be confident that those lawyers know our business so they don't have to reinvent the wheel when a new legal matter arises. With more than 3400 stores and 35,000 employees operating in all 50 U.S. states and across Canada, we rely on the ELA to partner with us to help accomplish our objectives. I have been delighted with the consistent high quality of the work performed by ELA lawyers. I encourage other in-house counsel to use their services, as well.

Ingram Micro

Ingram Micro is the world's largest technology distributor, providing sales, marketing, and logistics services for the IT industry around the globe. With over 13,000 employees working throughout the U.S. and in 35 international countries, we need employment lawyers who we can count on to ensure global legal compliance. Our experience with many multi-state and multi-national law firms is that their employment law services are not always a high priority for them, and many do not have experts in many of their offices. The ELA has assembled an excellent team of highly skilled employment lawyers, wherever and whenever I need them, and they have proven to be an invaluable resource to our company.

Konami Gaming

Our company, Konami Gaming, Inc., is growing rapidly in a very diverse and highly regulated industry. We are aggressively entering new markets outside the domestic U.S., including Canada and South America. I have had the recent opportunity to utilize the services provided by the ELA. The legal advice was both responsive and professional. Most of all, the entire process was seamless since our Nevada attorney coordinated the services and legal advice requested. I look forward to working with the ELA in the future, as it serves as a great resource to the legal community.

Jennifer Martinez
Vice President, Human Resources

Nikkiso Cryo, Inc.

Until recently, I was unaware of the ELA's existence. We have subsidiaries and affiliates throughout the United States, as well as in Asia, the Middle East and Europe. When a recent legal issue arose in Texas, our long-time Nevada counsel, who is a member of the ELA, suggested that this matter be handled by his ELA colleague in Dallas. We are very pleased with the quality and timeliness of services provided by that firm, and we are excited to now have the ELA as an important asset to help us address employment law issues worldwide.

Palm, Inc.

The ELA network has been immensely important to our company in helping us address an array of human resources challenges around the world. I strongly encourage H.R. executives who have employees located in many different jurisdictions to utilize the ELA's unparalleled expertise and geographic coverage.

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Former Senior Director of Human Resources

Rich Products

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Ricoh Americas Corporation

We have direct sales and service offices all over the U.S., but have not necessarily had the need in the past for assistance with legal work in every state where we have a business presence. From time to time, we suddenly find ourselves facing a legal issue in a state where we have no outside counsel relationship. It has been a real benefit to know that the ELA has assembled such an impressive team of experts throughout the U.S. and overseas.

A few years ago, we faced a very tough discrimination lawsuit in Mississippi. We had never had to retain a lawyer there before. I was absolutely delighted with the Mississippi ELA firm. We received an excellent result. They will no doubt handle all of our employment law matters in Mississippi in the future. I have also obtained the assistance of several other ELA firms around the U.S. and have received the same outstanding service. The ELA is a tremendous resource for our company.

Roberts-Gordon LLC

Our affiliated companies have used the Employment Law Alliance in connection with numerous acquisitions, and have always been extremely pleased with our ability to obtain the highest quality legal advice on due diligence issues from jurisdiction to jurisdiction. We have found the Employment Law Alliance firms to be not only first rate with respect to their legal advice but also responsive and timely in assisting us with federal and state law issues critical to our due diligence efforts. We consider the Employment Law Alliance to be an important part of our team.

Rockwell Collins, Inc.

We have partnered with many ELA firms on the development and execution of case management strategies with very positive results. We have been very pleased with the legal advice and counsel provided by the law firms we have utilized who are affiliated with the Employment Law Alliance. The ELA firms we have worked with are customer focused, responsive, and thorough in their approach to handling labor and employment law matters.

Elizabeth Daly
Assistant General Counsel


Sanmina-SCI has facilities strategically located in key regions throughout the world. Our customers expect that we will provide them with the highest quality and most sophisticated services in the marketplace. We have that same expectation for the lawyers with whom we do business. With operations in 17 countries, we need to be certain that we have a team of lawyers working together to address our employment law needs worldwide. The ELA has delivered exactly what it promised-- seamless and consistent high quality services delivered in each locale around the globe. It has quickly become a key asset for our human resources department.


We own, manage, and franchise hotels throughout the U.S. and in more than 90 countries. With more than 145,000 employees worldwide, ensuring that we comply with the complex web of local labor and employment laws in every one of these jurisdictions is a daunting task. The Employment Law Alliance has served as an important resource for us and we have benefited greatly from its expertise and long reach. When a legal dispute or issue has arisen in some far-flung place, Employment Law Alliance lawyers have always provided responsive, practical, and cost-effective assistance.

Wilmington Trust Corporation

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General Counsel