The National Labor Relations Board (NLRB) issued a decision in Nexeo Solutions, LLC earlier this week, ruling that the buyer in an asset purchase of the seller’s business was a "perfectly clear" successor. As a result, the NLRB found that the buyer unlawfully failed to bargain with the union when it unilaterally set initial terms and conditions of employment. The decision expands the Board's interpretation of the successorship doctrine, under which the buyer in an asset purchase transaction is a successor employer and must recognize and bargain with the union when it continues the seller's operations and hires a majority of the seller's unionized employees.

Under the successorship doctrine, if the successor entity makes "perfectly clear" its intent to retain a majority of employees in the bargaining unit, the successor is required to adopt the existing collective bargaining agreement at the outset, and then bargain with the union over any changes to the terms and conditions of employment. If, however, the successor announces its intent to set materially different initial terms and conditions of employment prior to offering employment, it still must recognize the union, but it is free to set its own initial terms and conditions of employment.

In Nexeo Solutions, the purchase agreement—signed in November—contained a commitment by Nexeo to hire the seller's employees and, for at least 18 months, to provide them with base salary and wages and aggregate employee benefits no less favorable than those they currently were receiving. In the immediate days and weeks after the parties signed the purchase agreement, the seller engaged in a series of communications with its employees, making clear that they would be hired by Nexeo. The communications did not specifically address terms and conditions of their future employment with Nexeo, although they did reference Nexeo's commitment concerning wages and benefits.

Nexeo's first communication with employees was at a town hall meeting in January. Talking points from the meeting reflect that Nexeo's new CEO advised that the company was "working hard to flesh out final plans for our new company’s compensation and benefits program." Nexeo then met with the union in February and advised that it intended to mail offer letters the following day and provided the union with the draft of the letter. The letter informed the seller's employees that Nexeo would not adopt the collective bargaining agreement and that it would set new terms and conditions of employment, including different retirement and health insurance benefits. Nexeo proceeded to commence pre-closing negotiations with the union and, not having reached agreement, it unilaterally implemented initial terms and conditions when the deal closed and it took over operations on April 1. The new terms included discontinuing participation in the union pension plan, converting employees to its 401(k) plan, and offering a different health insurance plan.

In a split decision, the majority of a three-member NLRB panel found that Nexeo became a "perfectly clear" successor in November, when the seller first communicated Nexeo's intent to retain the seller’s employees, without making clear that employment would be conditioned on acceptance of new terms. The majority found that Nexeo had the right to control—and in fact exercised control over—the seller's communications. The majority thus found that Nexeo ratified the seller's November communications by "affirming them and failing to repudiate them." The majority refused to credit Nexeo for its communication to employees at the January town hall meeting and to the union and employees in February, even though in those communications Nexeo announced its intent to offer employment on different terms and conditions.  Notably, those communications preceded the change in ownership by several months.

In light of the Nexeo decision, future asset purchasers will need to be even more vigilant regarding communications with unionized employees it will hire as part of an asset purchase to ensure that, from the very outset, there can be no doubt that it intends to offer employment on different terms and conditions.

Ballard Spahr's Labor and Employment Group advises employers on all aspects of labor-management relations, including providing advice with respect to mergers and acquisitions.

Copyright © 2016 by Ballard Spahr LLP.
(No claim to original U.S. government material.)

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, including electronic, mechanical, photocopying, recording, or otherwise, without prior written permission of the author and publisher.

This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.

Related Practices